Taxpayers who believe they are entitled to a residential energy tax credit must complete and file Internal Revenue Service (IRS) Form 5695. This form is used to determine the amount (if any) of energy-efficient tax credits taxpayers are entitled to claim on their tax return. Taxpayers who complete the form should submit it even if their calculations show that they are not entitled to a credit.
Completing Form 5695
Titled 'Residential Energy Credits,' Form 5695 is divided into two main parts: the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit. The types of products included in each category are described in IRS Tax-Tip 2011-49. You only need to complete the part relating to the type of credit you are eligible to claim.
- The Residential Energy Efficiency Property Credit provides taxpayers with a credit for certain types of energy-producing systems installed on their home.
- The Nonbusiness Energy Property Credit provides taxpayers with a credit for certain energy efficient products purchased and installed in the home.
Completing Part I
This Residential Energy Efficiency Property Credit section requires you to input the amount you spent to purchase and install any energy-generating devices on your main residence.
- List the specific amount you spent on different types of qualifying items. Examples include solar electric, solar water heating, small wind energy and geothermal heat pump property costs.
- On line 14, you will need to enter the credit limitation based on your tax liability. The Form 5695 instructions include a worksheet on page 4 to help you make the necessary calculations.
- Line 15 has the instructions you need to include the credit amount on your Form 1040 or 1040NR so that you can claim the credit.
Completing Part II
In the Nonbusiness Energy Property Credit section, you will need to identify the types of any energy-efficient improvements you made to your home and what they cost.
- Line 17 requires you to confirm that the improvements were to your main home,
- Line 18 indicates how much you've already claimed for the credit in past years. If you have previously claimed $500 or more, you won't be able to take the credit again for the current year.
- Lines 19a through 19d and 22a through 22c are dedicated to different types of improvements, to help you calculate how much you spent in total.
- Lines 23 through 28 guide you through determining how much credit you may claim.
- On line 29, you will need to enter the credit limitation based on your tax liability. The Form 5695 instructions include a worksheet on page 6 to help you make the necessary calculations.
- Line 30 has the instructions you need to include the credit amount on your Form 1040 or 1040NR so that you can claim the credit.
In order to complete Form 5695, you'll need to know exactly how much you spent on the qualified home improvements. You'll also need to save copies of the receipts for these expenses in case you're audited in the future. If you're not sure whether you are entitled to these credits or how to complete the form, seek advice from a tax professional.