What is the Form 5695?

Form 5695, also known as the Residential Clean Energy Credit Form, is used to claim a tax credit for installing solar panels and other energy-efficient property in your home. In this article, we'll provide the exact steps for filling out Form 5695 and other important information related to the form.

Here's a summary of the type of information included in Form 5695:

• Information about the taxpayer's home and the energy-saving improvements made
• Details of the costs incurred for the improvements
• Calculations for determining the amount of credit that can be claimed
• Information on any credit carryforwards or carrybacks, if applicable

‍

Who needs to file the Form 5695?

Form 5695 is primarily intended for homeowners who have made energy-efficient improvements to their primary residence. This includes individuals who have installed solar panels, solar water heaters, geothermal heat pumps, small wind turbines, or fuel cell property. However, there are certain exceptions where taxpayers may not be eligible to claim the credit. These exceptions include:

• Non-residential properties or rental properties
• Energy-efficient improvements made to vacation homes or secondary residences
• Improvements made before January 1, 2006, or after December 31, 2021, for most types of property (with some exceptions for fuel cell property)
• Improvements that do not meet the specific energy-efficiency requirements set by the IRS
• Improvements for which the taxpayer has already claimed a credit in a previous tax year

Essential updates to the Form 5695

For the most recent updates to Form 5695, taxpayers should be aware of the following changes:

• The tax credit for residential energy-efficient property, which includes solar panels, solar water heaters, geothermal heat pumps, and small wind turbines, has been extended through December 31, 2023. However, the credit rate has been reduced to 26% for property placed in service after December 31, 2019, and before January 1, 2023, and 22% for property placed in service after December 31, 2022, and before January 1, 2024. The credit rate for fuel cell property remains at 30%.
• For tax years beginning after December 31, 2020, the IRS instructions for Form 5695 have been updated to reflect the changes in the credit rates and the extension of the credit for residential energy-efficient property.
• It is important to note that the tax credit for non-business energy property, which includes energy-efficient windows, doors, insulation, and certain heating and cooling equipment, has expired and is not available for property placed in service after December 31, 2021.

As tax laws and regulations are subject to change, it is always recommended to consult the most recent version of Form 5695 and its instructions, as well as any relevant IRS publications, to ensure accurate and up-to-date information when claiming the residential clean energy credit.

2024 Form 5695 filing deadlines

Form 5695 is typically filed annually along with the taxpayer's federal income tax return for the year in which the energy-saving improvements were made. The due date for filing Form 5695 generally falls in the late winter or early spring of the following year, depending on the tax year in question. The IRS adjusts due dates for weekends and holidays, so if the regular due date falls on a Saturday, Sunday, or legal holiday, the return is due on the next business day.

Exact deadline dates for 2024

Based on the information available, the due dates for Form 5695 are as follows:

• Form 5695 should be filed along with the taxpayer's annual income tax return, which is typically due on April 15th of the following year.
• If the solar panel system was installed in a specific tax year, the form should be completed when filing taxes for that year, which generally falls in the late winter or early spring of the subsequent year.

Form 5695 late payment penalty

Failure to file Form 5695 on time or underreporting your tax liability can result in IRS penalties, which can amount to 5% of the total tax amount due. You can be charged an additional 5% fee every month your return has not been submitted for up to 5 months. Ensure you give yourself enough time to complete and file your Form 5695 by the due date, which is typically April 15th of the following year when filed along with your annual income tax return. If you discover an error on a previously filed Form 5695, consult the IRS instructions for guidance on how to correct the error and amend your tax return.

Step-by-Step Instructions for IRS Form 5695

Part I: Residential Clean Energy Credit

This section helps you calculate the credit for energy-efficient installations like solar, wind, and geothermal systems in your home.

• Line 1: Enter costs for qualified solar electric property installations.
• Line 2: Enter costs for qualified solar water heating property installations.
• Line 3: Enter costs for qualified small wind energy property installations.
• Line 4: Enter costs for qualified geothermal heat pump installations.
• Line 5:
  • 5a: Check "Yes" if the qualified battery storage technology has a capacity of at least 3 kilowatt hours. If "No," you cannot claim a credit.
  • 5b: Enter the costs for qualified battery technology if 5a is "Yes."
• Line 6: Add lines 1 through 5b to calculate the total cost of qualified clean energy improvements.
• Line 7:
  • 7a: Check "Yes" if qualified fuel cell property was installed. If "No," you cannot claim this credit and must skip lines 7b through 11.
  • 7b: Enter the address of the main home where the fuel cell property was installed.
• Line 8: Enter costs for qualified fuel cell property.
• Line 9: Multiply line 8 by 30% to calculate the credit available for fuel cell property.
• Line 10: Enter the kilowatt capacity of the property from line 8, then multiply by $1,000.
• Line 11: Enter the smaller of line 9 or line 10.
• Line 12: If you have any credit carryforward from 2022, enter the amount.
• Line 13: Add lines 6b, 11, and 12 to get the total available credit.
• Line 14: Enter the amount from the Residential Clean Energy Credit Limit Worksheet (based on tax liability).
• Line 15: Enter the smaller of line 13 or line 14. This is your Residential Clean Energy Credit.
• Line 16: If the amount in line 15 is less than line 13, subtract line 15 from line 13 to find out how much credit can be carried forward to 2024.

This part calculates the credit that can be claimed based on investments in energy-efficient technologies, crucial for reducing overall tax liabilities through environmentally conscious upgrades.

For Paperwork Reduction Act and Privacy Act Notice

This notice, typically at the end of tax forms, informs the taxpayer about the Privacy Act and the Paperwork Reduction Act, explaining how the IRS uses the information provided and the time estimated to complete the form.

How to file Form 5695

Form 5695 can be filed electronically using tax preparation software or through a tax professional who offers e-filing services. Alternatively, to file Form 5695 by mail, complete the form according to the provided instructions and attach it to your federal income tax return. Mail your completed tax return, along with Form 5695, to the appropriate IRS address based on your state of residence. The main differences between online and mail filing are that online filing is generally faster, more convenient, and reduces the risk of errors, while mailing a paper form may take longer to process and may require additional postage costs.

Need Help with other Finance or Startup Questions?

Choose Pilot for expert bookkeeping, CFO, and tax services, catering to thousands of startups and expanding businesses. We pride ourselves on processing over 10 million transactions and possessing exceptional knowledge in enhancing business growth. As the leading accounting firm focused on startups in the U.S., our goal is to help you thrive. Get in touch with our sales team or check out our demo for more information!

‍