Navigating IRS Form 5695 and the Solar Tax Credit 

Updated: June 12, 2025

Harnessing solar energy not only benefits the environment but also offers significant financial advantages through tax incentives. The Solar Tax Credit, accessible via IRS Form 5695, is a crucial financial tool for homeowners who have invested in solar energy. This comprehensive guide walks you through the necessary steps to claim your Solar Tax Credit effectively. We’ll cover eligibility requirements, calculating your credit, and how to account for additional energy-efficient improvements. 

Understanding the Solar Tax Credit aka the Investment Tax Credit (ITC)

The Solar Tax Credit, also known as the Investment Tax Credit (ITC), allows homeowners to deduct a portion of their solar panel installation costs from their federal taxes. This initiative is part of the government’s effort to encourage the adoption of renewable energy sources by making solar installations more affordable for individuals.

Eligibility for the Tax Credit: Filling out the IRS Form for Solar Tax Credit

To be eligible for the Solar Tax Credit, you must have installed a solar energy system at your primary or secondary residence in the United States. The system can be new or used, provided it’s the first time it’s being used by you. Both photovoltaic systems for electricity generation and solar water heaters qualify for the credit. 

Filling Out IRS Form 5695 

IRS Form 5695 is your ticket to claiming the Solar Tax Credit. This form is divided into sections designed to guide you through the process of calculating the credit amount you’re entitled to, based on your solar energy system installation costs. As you complete this form, please reference the instructions.   

Calculating the Credit 

The amount of credit you can claim is a percentage of the cost of purchasing and installing your solar energy system. This includes labor costs for onsite preparation, assembly, and original installation, and for piping or wiring to connect the system to your home. 

Start by listing all eligible costs associated with your solar energy system. This includes the cost of the solar panels, inverter, mounting equipment, and any additional equipment required for the system to function. 

Determine the applicable credit rate for the year your system was installed. This rate has varied over the years, so it’s important to apply the correct percentage. 

Calculate the total credit by applying the percentage to the total installation cost. 

What is IRS Form 5695?

IRS Form 5695, “Residential Energy Credits,” allows taxpayers to claim valuable tax credits for energy-efficient home improvements. These credits include:

• Residential Energy Efficient Property Credit: For installing solar panels, wind turbines, or geothermal heat pumps.
• Nonbusiness Energy Property Credit: For upgrades such as insulation or energy-efficient windows.

These incentives encourage homeowners to adopt sustainable energy solutions while reducing their tax liability. Proper completion of this form is essential to maximize eligible credits.

To ensure accuracy:

1. Gather documentation for all energy-efficient improvements made.
2. Review IRS guidelines to confirm eligibility for specific credits.
3. Complete all sections of Form 5695 as directed, ensuring all figures are correct.

By accurately filing Form 5695, taxpayers can reduce costs and contribute to environmental sustainability.

Including Costs Involved  for the Solar Tax Credit 

Remember, the Solar Tax Credit can significantly reduce the overall cost of going solar. To maximize your credit, ensure you include all eligible expenses in your calculations. Keep detailed records and receipts of all expenditure related to your solar energy system installation. 

Additional Information on Energy-Efficient Improvements 

Beyond solar panels, you might be eligible for credits for other energy-efficient improvements to your home. IRS Form 5695 Residential Clean Energy Credit (Part I) also covers these improvements, which can include small wind turbines, geothermal heat pumps, and solar water heaters. 

Documenting Your Energy-Efficient Improvements 

When claiming credit for these additional improvements, documentation is key. Maintain a file of all purchase and installation receipts, manufacturer certifications, and any other relevant documentation to support your claim. 

Conclusion about Form 5695 and the Solar Tax Credit

Claiming the Solar Tax Credit using IRS Form 5695 is a great way to reduce your solar energy costs. To maximize benefits, understand eligibility criteria, accurately calculate credit, and utilize credits for energy-efficient improvements. Remember, the goal is to reduce tax liability and promote a sustainable, renewable energy future. Join us in taking action. Get a quote now!

Disclaimer:  

This article is for informational purposes only and should not be considered tax, legal, or financial advice. We are not tax professionals. Tax laws are complex and change frequently, and individual circumstances vary. Consult a certified tax professional or financial advisor for personalized advice and to comply with tax regulations.