Form 5695 is used to calculate the nonrefundable credit for residential energy efficient property. For tax years 2006 through 2017 it was also used to calculate the nonbusiness energy property credit. This latter credit has expired.
Not all energy-efficient improvements qualify for the credit. The manufacturer’s tax credit certification statement can usually be found on the manufacturer’s website or with the product packaging. Eligible credits are claimed on Form 5695.
Note these are tax credits and not deductions, so they will generally reduce the amount of tax owed dollar for dollar. Since they are credits, they can be claimed regardless of whether or not the taxpayer itemizes deductions on Schedule A. Taxpayers should also be aware that the basis of the home is reduced by the amount of the tax credit.
The credit equals 30% of the costs of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and qualified fuel cell property. The cost is calculated as follows:
- The purchase cost of the property,
- plus labor costs properly allocable to the onsite preparation, assembly, or original installation of the property and for piping or wiring to interconnect the property to the home,
- minus any subsidies received from a public utility for the purchase or installation of the property if that subsidy wasn't included in the taxpayer's gross income
- The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property.
- Since this is a nonrefundable credit, the amount that can be taken in the current year is limited to the tax liability on the return, and is subject to further limitation based on the presence of other nonrefundable credits. Any unused credit can be carried forward to future years.
Kinds of property included on the form:
- Qualified solar electric property costs - Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in the taxpayer's home located in the United States. This includes costs relating to a solar panel or other property installed as a roof or a portion of a roof. The home does not have to be their main home.
- Qualified solar water heating property costs - Qualified solar water heating property costs are costs for property to heat water for use in the taxpayer's home located in the U.S. if at least half of the energy used by the solar water heating property for such purpose is derived from the sun. This includes costs relating to a solar panel or other property installed as a roof or a portion of a roof. To qualify for the credit, the property must be certified for performance by the nonprofit Solar Rating Certification Corporation or a comparable entity endorsed by the government of the state in which the property is installed. The home does not have to be their main home.
- Qualified small wind energy property costs - Qualified small wind energy property costs are costs for property that uses a wind turbine to generate electricity for use in connection with the taxpayer's home located in the United States. The home doesn't have to be their main home.
- Geothermal heat pump property costs - Qualified geothermal heat pump property costs are costs for qualified geothermal heat pump property installed on or in connection with the taxpayer's home located in the United States. Qualified geothermal heat pump property is equipment that uses the ground or ground water as a thermal energy source to heat the home or as a thermal energy sink to cool the home. To qualify for the credit, the geothermal heat pump property must meet the requirements of the Energy Star program in effect at the time of purchase. The home doesn't have to be their main home.
- Qualified fuel cell property costs - Qualified fuel cell property costs are costs for qualified fuel cell property installed on or in connection with the taxpayer's main home located in the U.S.. Qualified fuel cell property is an integrated system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity using electrochemical means. To qualify for the credit, the fuel cell property must have a nameplate capacity of at least one-half kilowatt of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.
- Nonbusiness Energy Property Credit (expired after 2017) - Taxpayers that made qualified energy-efficient improvements to their primary residence may have been eligible for the nonbusiness energy property credit. This credit applied to the purchase cost (but not installation cost) of building components such as energy-efficient exterior windows and doors, certain roofing, and insulation. A credit could also be claimed for the purchase cost and installation cost of certain high-efficiency heating and air conditioning systems, water heaters, and stoves that burn biomass fuel. The credit had a lifetime limit of $500, of which only $200 could be used for windows. If more than $500 of nonbusiness energy property credits had been claimed by the taxpayer since 2005, the credit could not be claimed.
To access the residential energy credits in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:
- Credits Menu
- Residential Energy Credits - 5695
NOTE: This is a guide to entering Residential Energy Credits into the TaxSlayer Pro program. This is not intended as tax advice. For additional information, refer to the Additional Information links below.