Did you know upgrading your home to be more energy-efficient could mean thousands back at tax time? According to the U.S. Department of the Treasury, in 2023 alone, over 3.4 million American families claimed $8.4 billion in clean energy and efficiency tax credits. That’s a serious win for both your wallet and the planet.
If you're wondering how to file taxes smartly in 2025 and take full advantage of energy-related incentives, you're in the right place. In this article, you’ll learn what IRS Form 5695 is, how it works, who qualifies, and how to maximize your tax benefits for energy-efficient home improvements.
What Is IRS Form 5695 and Why Does It Matter for Homeowners?
What is the purpose of IRS Form 5695?
IRS Form 5695 is used to claim residential energy credits—specifically the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. If you’ve made energy efficiency improvements to your home, Form 5695 is used to calculate your energy tax credit and apply it to your federal income tax return.
This tax form helps lower your tax liability by directly reducing your federal tax bill. Unlike deductions, it’s a credit—so every dollar counts. If you're trying to reduce your current tax owed, or plan for future tax savings, this form is your go-to.
Who should use IRS Form 5695 in tax year 2024?
Use Form 5695 on your 2024 income tax return if you:
- Made qualified energy efficiency improvements like insulation, ENERGY STAR windows, or energy-efficient doors.
- Installed residential renewable energy systems like solar energy, wind energy, or geothermal heat pumps.
- Paid for a home energy audit or upgraded qualified energy equipment to boost your home energy efficiency.
Whether you’re trying to claim a credit under the non-business energy property credit or the residential energy-efficient property credit, you need to complete IRS Form 5695 and attach it to Form 1040 when filing.
Further Reading: Learn about energy efficiency benefits
How Does the Energy Efficient Home Improvement Credit Work?
What qualifies as an energy efficient home improvement in 2024?
If you made energy efficiency improvements in tax year 2024, you may qualify for the Energy Efficient Home Improvement Credit, formerly known as the nonbusiness energy property credit.
Eligible energy property upgrades include:
- Insulation and air sealing materials
- Energy-efficient exterior windows and skylights
- ENERGY STAR exterior doors
- Electric panel upgrades
- Efficient HVAC systems and water heaters
You can also claim a credit of up to $150 for a home energy audit. These upgrades must meet specific energy standards to qualify, and the credit for the costs is 30% of eligible expenses (excluding most installation fees).
What are the new limits and rules for 2023–2032?
Thanks to the Inflation Reduction Act of 2022, the rules have changed:
- The old $500 lifetime limit is gone.
- Now, there’s a $1,200 annual limit, allowing you to claim the full credit each year if you qualify.
- For certain energy systems like heat pumps and biomass stoves, the limit increases to $2,000.
- This income tax credit applies only to your primary residence in the U.S.
Unlike before, you can use Form 5695 every year through 2032, provided you continue to make qualified energy improvements.
What Is the Residential Clean Energy Credit and How Is It Different?
What counts as qualified residential clean energy equipment?
The Residential Clean Energy Credit (formerly the Residential Energy Efficient Property Credit) covers renewable energy systems that help your home run cleaner and greener.
This residential energy credit includes:
- Solar energy systems (electric + water heating)
- Wind energy systems
- Geothermal heat pumps
- Battery storage (starting 2023)
- Fuel cell technology (limited to $500 per 0.5 kW)
This credit covers 30% of the total cost—including labor and installation. There’s no annual cap and no upper limit, making it one of the most significant tax credits for homeowners under federal income tax rules.
Can you use the clean energy credit for second homes or vacation homes?
Yes—for most residential energy efficient property, like solar energy systems and geothermal, you can claim the credit on a second home. The exception is fuel cell systems, which only qualify if installed in your primary residence.
The residential clean energy credit applies for improvements made between 2022 through 2032, stepping down after that. You can claim the credit by using IRS Form 5695 with your income tax return.
Further Reading: Unlock significant savings with insulation tax credits
How to Calculate and Claim Your Energy Tax Credits Using IRS Form 5695
How do I calculate my energy credit with Form 5695?
It’s simple math with serious savings. To calculate your credit:
- Energy efficient home improvement credit = 30% of material costs (no install)
- Residential clean energy credit = 30% of total costs (includes install)
Example:
- $10,000 spent on solar energy system = $3,000 solar tax credit
- $2,000 on insulation = $600 energy credit
Fill out Part I for residential clean energy systems. Use Part II for energy efficiency improvements. You’ll attach the form to your Form 1040 during tax filing.
What are the IRS rules for tax filing with Form 5695?
- These are nonrefundable tax credits—they can’t give you a refund but they will reduce your tax bill.
- You can carry forward unused credits to a future tax year.
- You must keep:
- Manufacturer certifications for all qualified energy equipment
- Receipts showing payment and installation dates
- Any home energy audit documentation
Use this to maximize your federal tax return and take full advantage of available green tax incentives.
Further Reading: Learn how to maximize your tax savings with residential energy credits
Why You Should Keep Good Records: Tax, Accounting, and Bookkeeping Advice
Does Form 5695 affect your home's tax basis?
Yes—and it matters when you sell. The amount of your energy property credit or residential clean energy credit reduces your home’s cost basis. This could increase your taxable gain down the road.
But unless your gain exceeds the $250,000 exclusion ($500,000 if filing jointly), it likely won’t impact your tax refund. Still, keep track for future tax planning.
What bookkeeping records should you retain?
You need airtight records, especially if you’re audited or managing business properties. Keep:
- Invoices showing type of energy equipment
- Proof of payment dates and install completion
- IRS Form 5695 copies for each tax year
- Audit reports and ENERGY STAR documentation
Proper documentation ensures you can claim residential energy credits with confidence—and helps your tax preparer file an accurate federal income tax return.
Key Takeaways
- Use IRS Form 5695 to claim residential energy credits on your 2024 tax return.
- Get up to 30% back for solar energy, insulation, and other energy-efficient upgrades.
- The energy efficient home improvement credit has a $1,200 annual limit.
- Residential clean energy credit covers solar, wind, geothermal, and battery systems.
- Save receipts and documents to reduce your federal tax and future tax liability.
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