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12298: 5695 - Residential Energy Efficient Property Credit

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5695 - Residential Energy Efficient Property Credit

Form 5695 can be used to claim energy efficient credits summarized below:

  • Part I: the Residential Energy Efficient Property Credit, and
  • Part II: the Non-business Energy Property Credit.

Entries for form 5695 are made on screen 5695 on the first Credits tab. Before claiming a credit, review the instructions to Form 5695 to make certain that the taxpayer and the improvements qualify for the credit. Generally, improvements must meet certain energy efficiency requirements. Special rules apply to jointly owned property, and married taxpayers with more than one home. 

These are non-refundable credits (see Related Links below). A detailed description of property that may qualify for a credit is here:  Federal Tax Credits for Consumer Energy EfficiencyThe form will not generate in view mode unless a credit is being calculated on the return. 

Note that only two screens 5695 are allowed per return. 

Residential Energy Efficient Property Credit (Part 1 of Form 5695)

This credit deals with solar, wind, geothermal and fuel cell property that supplies energy. Carryover credit appears on Wks CARRY.

You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and fuel cell property. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to interconnect such property to the home. 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.

Form 5695 instructions

Consumer purchases of home appliances do not qualify for federal energy tax credits but may qualify for a state rebate program. See Related Links below.

Prior-year credits used must be entered on screen 5695. The software does not carry over unused credit. 

Non-business Energy Property Credit (Part II of Form 5695)

This credit deals with property that improves energy efficiency.

This credit had expired on December 31, 2016, however, it was extended by Congress on February 9, 2018 for the 2017 filing season (Drake17). The 5695 screen was updated to allow entries for part II with 1040 update 23 in Drake17.

The 5695 was extended for tax years 2018 and 2019 under the Further Consolidated Appropriations Act, 2020, passed on December 20, 2019. Drake18 will be updated as soon as the IRS finalizes the form changes and instructions for 2018. Drake19 has been updated to allow entry for part II. See the Form 5695 Instructions for details. 

You may be able to take a credit equal to the sum of:

1.     10% of the amount paid or incurred for qualified energy efficiency improvements installed during 20YY, and
2.     Any residential energy property costs paid or incurred in 20YY.

This credit is limited; see the 5695 instructions for details. In addition, i
f the total of any non-business energy property credits you have taken in previous years (after 2005) is more than $500, you generally cannot take the credit in 20YY.

Form 5695 instructions

The two categories of property covered by this credit are (1) qualified energy efficiency improvements and (2) residential energy property costs.

  1. Qualified energy efficiency improvements include
    • Insulating material or systems specifically and primarily designed to reduce heat loss or gain.
    • Exterior windows and skylights.
    • Exterior doors.
    • Metal roof with certain coatings designed to reduce heat gain.
  2. Residential energy property costs include
    • Certain electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane, or oil water heaters; and stoves that use biomass fuel.
    • Qualified natural gas, propane, or oil furnace or hot water boiler.
    • Certain advanced main air circulating fan used in a natural gas, propane, or oil furnace.

Due to the late extension and implementation of the Nonbusiness Energy Property Credit, available on page 2 of Form 5695, certain client data that was updated from last year’s return prior to the release of 1040 Program Update No. 23 may not be correct. Review the amounts on line 18, boxes “2015” and “2016,” and the amounts on line 19f, boxes “2015” and “2016,” for accuracy before completing the return.

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