Section references are to the Internal Revenue Code unless otherwise noted.
For the latest information about developments related to Form 5695 and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form5695.
Residential clean energy credit.
The residential clean energy credit added a credit for qualified battery storage technology. Battery storage technology costs are allowed for the residential clean energy credit for expenses paid after December 31, 2022. See Qualified battery storage technology costs , later, for details.
Biomass fuel property costs are no longer allowed for the Residential Clean Energy Credit for property placed in service after December 31, 2022.
Energy efficient home improvement credit.
The energy efficient home improvement credit is now divided into two sections to differentiate between qualified energy efficiency improvements and residential energy property expenditures.
For the energy efficient home improvement credit, the lifetime limitation has been replaced by an annual credit limit. A 30% credit, up to a maximum of $1,200, may be allowed for:
The limits for each category of these items that qualify for a credit is discussed later in Section A—Qualified Energy Efficiency Improvements.
Heat pumps and heat pump water heaters, biomass stoves and biomass boilers have a separate annual credit limit of $2,000 with no lifetime limitation, which replaces the prior lifetime limitation of $500.
For additional information and Frequently Asked Questions about energy efficient home improvements and residential clean energy property credits, see Fact Sheet 2022-40 at https://www.irs.gov/pub/taxpros/fs-2022–40.pdf.
Residential energy efficient property credit.
The residential energy efficient property credit is now the residential clean energy credit. The credit rate for property placed in service in 2022 through 2032 is 30%.
Energy efficient home improvement credit.
The nonbusiness energy property credit is now the energy efficient home improvement credit. The credit is extended to property placed in service through December 31, 2032.
Use Form 5695 to figure and take your residential energy credits. The residential energy credits are:
Also use Form 5695 to take any residential clean energy credit carryforward from 2022 Form 5695 or to carry the unused portion of the residential clean energy credit to 2024.
You may be able to take the credits if you made energy saving improvements to your home located in the United States in 2023.
Home.
A home is where you lived in 2023 and can include a house, houseboat, mobile home, cooperative apartment, condominium, and a manufactured home that conforms to Federal Manufactured Home Construction and Safety Standards.
You must reduce the cost basis of your home if a residential energy credit is allowed for any expense for any property. The increase in the basis of the property that would result from the expenses will be reduced by the amount of the allowed credit.
Main home
Your main home is generally the home where you live most of the time. A temporary absence due to special circumstances, such as illness, education, business, military service, or vacation, won't change your main home
Costs.
For purposes of both credits, costs are treated as being paid when the original installation of the item is completed, or, in the case of costs connected with the reconstruction of your home, when your original use of the reconstructed home begins. For purposes of the residential clean energy credit only, costs connected with the construction of a home are treated as being paid when your original use of the constructed home begins. If less than 80% of the use of an item is for nonbusiness purposes, only that portion of the costs that is allocable to the nonbusiness use can be used to determine either credit.
The residential clean energy credit (Part I) is available for both existing homes and homes being constructed. The energy efficient home improvement credit (Part II) is only available for existing homes.
IRS guidance issued with respect to the energy credit under section 48, such as Notice 2018-59 and Notice 2021-41, does not apply to the residential energy credits.
If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of such association or corporation.
If you received a subsidy from a public utility for the purchase or installation of an energy conservation product and that subsidy wasn't included in your gross income, you must reduce your cost for the product by the amount of that subsidy before you figure your credit. This rule also applies if a third party (such as a contractor) receives the subsidy on your behalf.
If you made energy saving improvements to more than one home that you used as a residence during 2023, enter the total of those costs on the applicable line(s) of one Form 5695. For qualified fuel cell property, see Lines 7a and 7b , later.
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, battery storage technology, and fuel cell property. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the residential clean energy 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.
Qualified solar electric property costs.
Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. Some solar roofing tiles and solar roofing shingles serve the function of both traditional roofing and solar electric collectors, and thus serve functions of both solar electric generation and structural support. These solar roofing tiles and solar roofing shingles can qualify for the credit. This is in contrast to structural components such as a roof's decking or rafters that serve only a roofing or structural function and thus do not qualify for the credit. The home doesn't have to be your main home.
Qualified solar water heating property costs.
Qualified solar water heating property costs are costs for property to heat water for use in your home located in the United States if at least half of the energy used by the solar water heating property for such purpose is derived from the sun. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. Some solar roofing tiles and solar roofing shingles serve the function of both traditional roofing and solar electric collectors, and thus serve functions of both solar electric generation and structural support. These solar roofing tiles and solar roofing shingles can qualify for the credit. This is in contrast to structural components such as a roof's decking or rafters that serve only a roofing or structural function and thus do not qualify for the credit. 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 doesn't have to be your 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 your home located in the United States. The home doesn't have to be your main home.
Qualified 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 your home located in the United States. Qualified geothermal heat pump property is any equipment that uses the ground or ground water as a thermal energy source to heat your home or as a thermal energy sink to cool your home. To qualify for the credit, the geothermal heat pump property must meet the requirements of the Energy Star program that are in effect at the time of purchase. The home doesn't have to be your main home.
Qualified battery storage technology costs.
Qualified battery storage technology costs are costs for battery storage technology that is installed in connection with your home located in the United States and has a capacity of at least 3 kilowatt hours.
Qualified fuel cell property costs.
Qualified fuel cell property costs are costs for qualified fuel cell property installed on or in connection with your main home located in the United States. 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%.
Costs allocable to a swimming pool, hot tub, or any other energy storage medium that has a function other than the function of such storage don't qualify for the residential clean energy credit.
Joint occupancy.
If you occupied your home jointly with someone other than your spouse, each occupant must complete their own Form 5695. To figure the credit, the maximum qualifying costs that can be taken into account by all occupants for qualified fuel cell property costs is $1,667 for each one-half kilowatt of capacity of the property. The amount allocable to you for qualified fuel cell property costs is the lesser of:
These rules don't apply to married individuals filing a joint return.
Example.
Ava owns a house with Bruce where they both reside. In 2023, they installed qualified fuel cell property at a cost of $20,000 with a kilowatt capacity of 5. Ava paid $12,000 towards the cost of the property and Bruce paid the remaining $8,000. The amount to be allocated is $16,670 ($1,667 x 10 (kilowatt capacity x 2)). The amount of cost allocable to Ava is $10,002 ($16,670 x $12,000/$20,000). The amount of cost allocable to Bruce is $6,668 ($16,670 x $8,000/$20,000).
You may be able to take a credit equal to 30% of the sum of:
Subsidized energy financing.
Any amounts provided for by subsidized energy financing can't be used to figure the energy efficient home improvement credit. This is financing provided under a federal, state, or local program, the principal purpose of which is to provide subsidized financing for projects designed to conserve or produce energy.
Qualified energy efficiency improvements.
Qualified energy efficiency improvements are the following building envelope components installed on or in your main home that you owned during 2023 located in the United States if the original use of the component begins with you, the component can be expected to remain in use at least 5 years, and the component meets certain energy standards.
For purposes of figuring the credit, don't include amounts paid for the onsite preparation, assembly, or original installation of the building envelope component.
To qualify for the credit, qualified energy efficiency improvements must meet certain energy efficiency requirements. See Line 18a through Line 20a, later, for details.
Residential energy property costs are costs of new qualified energy property that is installed on or in connection with a home that you used during 2023 located in the United States. Include any labor costs properly allocable to the onsite preparation, assembly, or original installation of the energy property. Qualified energy property is any of the following.
To qualify for the credit, qualified energy property must meet certain energy efficiency requirements. See Line 22a through Line 25a and Lines 29a Through 29e, later, for details.
Home energy audits.
Home energy audits costs are costs for an inspection of your main home located in the United States and a written report was prepared by a certified home energy auditor that:
To qualify for the credit, home energy audits must meet certain requirements. See Lines 26a Through 26c, later, for details.
Joint ownership of qualified property.
If you and a neighbor shared the cost of qualifying property to benefit each of your main homes, both of you can take the energy efficient home improvement credit. You figure your credit on the part of the cost you paid. The limit on the amount of the credit applies to each of you separately.
Married taxpayers with more than one home.
If both you and your spouse owned and lived apart in separate main homes, the limit on the amount of the credit applies to each of you separately. If you are filing separate returns, both of you would complete a separate Form 5695. If you are filing a joint return, figure your energy efficient home improvement credit as follows.
Joint occupancy.
If you owned your home jointly with someone other than your spouse, each owner must complete their own Form 5695. To figure the credit, enter the amounts you paid for these items on the appropriate lines of Form 5695, Part II. The amount allocable to you is the smaller of: