form 5695 instructions solar tax credit

How do I claim the solar tax credit (ITC)? Form 5695 instructions

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If you’re considering solar, you’ve probably heard about the federal solar tax credit, also known as the Investment Tax Credit (ITC). The Federal ITC makes solar more affordable for homeowners and businesses by granting a dollar-for-dollar tax deduction equal to 26% of the total cost of a solar energy system.

Find out what solar panels cost in your area in 2021

What does 26% actually mean for the average solar shopper? According to EnergySage marketplace data, the average national gross cost of installing a solar panel system in 2021 is $16,860. At that price, the solar tax credit can reduce your federal tax burden by $4,618 – and that’s just one of many rebates and incentives that can reduce the cost of solar for homeowners. There’s plenty of information out there about the value of the residential ITC, but figuring out how to actually claim the credit when it comes time to file your taxes is another story. We’ll walk you through the instructions step by step from Form 5695 to Schedule 3/Form 1040.

Key takeaways

  • Claiming the federal ITC involves determining your tax appetite and filling out the proper forms
  • The federal ITC remains at 26% for 2021 and 2022
  • Start comparing solar quotes on the EnergySage Marketplace for maximum savings

Form 5695 instructions: the 3 steps to claim the solar tax credit

There are three broad steps you’ll need to take in order to benefit from the federal solar tax credit:

  1. Determine if you are eligible

    Make sure you have enough tax appetite to use the federal ITC against your total taxes.ITC three scenarios

  2. Complete IRS Form 5695

    This form validates your qualification for renewable energy credits, and can be obtained online.

  3. Add your renewable energy credit information to your typical Form 1040

    Loop your renewable energy credit information into your regular tax form.

First things first: am I eligible for the solar tax credit?

You are eligible for the Federal ITC as long as you own your solar energy system, rather than lease it. If you sign a lease agreement, the third-party owner gets the solar tax credit associated with the system. This is also true for the vast majority of state and local incentives for solar, although in some special cases a lease will grant you the financial benefits associated with the sale of solar renewable energy certificates (SRECs). You are also eligible even if the solar energy system is not on your primary residence – as long as you own the property and live in it for part of the year, you can claim the solar tax credit.

If your federal tax liability is lower than the total amount of your ITC savings, you can still take advantage of it by carrying over any remaining credits to the following year. Check out our video below for a brief overview of how the ITC works:

Here’s an example: You pay $20,000 to install a solar system on your home in 2021, which means you are eligible for a $5,200 federal solar tax credit. If your federal tax liability for 2021 is only $4,500, you will owe no federal taxes that year, and in 2022, you will reduce your tax liability by $700.

Instructions for filling out IRS Form 5695 for 2021

Claiming the ITC is easy. All you need to do is complete IRS Form 5695, “Residential Energy Credits,” and include the final result of that form on IRS Schedule 3/Form 1040.

Please note: At EnergySage, we are solar experts, not tax experts! Tax codes are complicated, so consult your tax advisor before deciding what is best for you.

Form 5695 instructions

Form 5695 calculates tax credits for a variety of qualified residential energy improvements, including geothermal heat pumps, solar panels, solar water heating, small wind turbines, and fuel cells. We’ll use the national average gross cost of a solar energy system as an example.

  • First, you will need to know the qualified solar electric property costs. That is the total gross cost of your solar energy system after any cash rebates. Add that to line 1.
  • Insert the total cost of any additional energy improvements, if any, on lines 2 through 4, and add them up on line 5.
form 5695 instructions
  • On line 6, multiply line 5 by 26%. This is the amount of the solar tax credit.
form 5695 instructions
Note: this is from the 2019 form when the ITC was still 30%.
  • Assuming you are not also receiving a tax credit for fuel cells installed on your property, and you aren’t carrying forward any credits from last year, put the value from line 6 on line 13.

Now you need to calculate if you will have enough tax liability to get the full 26% credit in one year.

  • Complete the worksheet on page 4 of the instructions for Form 5695 to calculate the limit on tax credits you can claim. If you are claiming tax credits for adoption expenses, interest on a mortgage, or buying a plug-in hybrid or electric vehicle, you will need that information here. (For this example, total federal tax liability is $7,000.)
form 5695 line 14
  • Enter the result on line 14 of Form 5695. Review line 13 and line 14, and put the smaller of the two values on line 15.
  • If your tax liability is smaller than your tax credits, subtract line 15 from line 13, and enter it on line 16. That’s the amount you can claim on next year’s taxes.
form 5695 instructions

Add credit to Schedule 3/Form 1040

The value on line 15 is the amount that will be credited on your taxes this year. Enter that value into Schedule 3 (Form 1040 or 1040-SR), line 5, or Form 1040NR, line 50.

form 5695 final step

The steps above outline all you need to do to have 26% of the cost of your solar panel system credited back to you! If you did energy efficiency improvements to your home in the same year, you may also need to complete page 2 of Form 5695. Either way, be sure to include Form 5695 when you submit your taxes to the IRS.

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251 thoughts on “How do I claim the solar tax credit (ITC)? Form 5695 instructions

  1. AvatarChristine

    i signed a contract with an lease to own. can i still claim this credit? i have 240 months to pay it.

  2. AvatarJohn D. Fischer

    I purchased our solar system in December 2018 and it was installed in January of 2019. When we purchased this system we would get a 30% tax rebate on our system. When we did our taxes we were told we could not get any tax rebate. Now I am finding out maybe she is wrong am trying to how and what to do. I am 76 years old and having a hard time understanding this, so need help.
    Thank you
    John Fischer

  3. AvatarBob W

    I’m guessing No. Have you paid anything towards these panels in 2019?
    Another reason I’m guessing no is, until they are actually installed all you have is a yes I want your service. Things happen, maybe you change your mind. Or say this virus has hit your installers.
    Hopefully you get a person that can explain the tax credit. My salesman really had no clue. He kept saying that I’d be getting the money, regardless of what taxes I pay. I was telling him there’s no way the Gov was going to be adding that amount to my tax return. He kept saying yes, & asked what I’d be doing with the $. I kept telling him I’m sure this will only reduce my tax. We usually get 12-1500 back.
    I should’ve shopped around. $35k is way too much to pay for 23 panels. Maybe it been worth it if I wasn’t living where it shows.
    Another thing the salesman said which was wrong. He said the UV would get thru snow to generate power. Also that the panels are black & would most likely melt the snow.. Well, it appears the snow is done for the ’19-’20 winter. I can tell you for sure snow stayed on panels & no energy was produced while there was snow on, or when cloudy.
    Since you only signed for, maybe you had time to shop around. Hope works out for you, & your salesperson was more knowledgeable than mine. Happy elec bill savings to you.

  4. AvatarVickie Adams

    Can I deduct solar panels on my 2019 tax return I’d I signed the documentation in November, but the work was not completed until February 2020?

  5. AvatarGeorge Zimmermann

    these instructions are out of date, line 53 does not exist on the 2019 1040 form, you need to do a schedule 3 for 2019

  6. AvatarBrenda Chilson

    That worksheet as shown here is NOT what is actually on the form. Form 1040 line 47 does not exist! Lines go to 23. PLUS on the instruction/worksheet it says to use line 12b which is only another credit line. I do NOT see how your tax liability is calculated or inputted in this worksheet!


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