form 5695 instructions solar tax credit

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

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 30% of the total cost of a solar energy system.

What does 30% actually mean for the average solar shopper? According to EnergySage marketplace data, the average national gross cost of installing a solar panel system in 2019 is $17,940. At that price, the solar tax credit can reduce your federal tax burden by $5,490 – 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 Form 1040.

Key takeaways

  • Claiming the federal ITC involves determining your tax appetite and filling out the proper forms
  • The federal ITC steps down to 26% at the end of 2019, and 22% after 2020
  • 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.irs itc form

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

    Loop your renewable energy credit information into your regular tax form.irs form 1040

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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 2018, which means you are eligible for a $6,000 federal solar tax credit. If your federal tax liability for 2018 is only $4,500, you will owe no federal taxes that year, and in 2019, you will reduce your tax liability by $1,500.

Instructions for filling out IRS Form 5695 for 2019

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 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 30%. This is the amount of the solar tax credit.
form 5695 instructions
  • 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 30% 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 Form 1040

The value on line 15 is the amount that will be credited on your taxes this year. Enter that value into Form 1040, line 53 (or Form 1040NR, line 50).

form 5695 final step

The steps above outline all you need to do to have 30% 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.

Additional Solar Energy Resources

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

  1. Helen

    Would it be better to claim more dependents through year to max the solar rebate at the end of tax year 2019?

  2. Craig

    If someone needs to replace their roofing to install solar panels, is this cost deductible as well, given it’s part of the systems install?

  3. Ernest Jackson

    We, are senior citizens and we don’t pay federal taxes. Do we qualify for the “solar tax credit “?

  4. Glenn R Van Den Bosch

    sale of a home with capital gains which adds to your total tax liabilitiy, plus is there carry over into the future or is it one time, and if a new roof is included for thr solar installation is this included into the total solar cost?

  5. bocamian

    I had an appointment with one company – Atlantic Key Energy – that told me the financing required me to pay down my loan in the amount of my tax credit refund in order for the payment to remain the same. They made it sound like I would get a check from the IRS for the tax credit. THIS IS NOT TRUE. I’m not sure why they are marketing it this way, but it seems pretty shady to me.

    The Residential Energy Efficient Property Credit is NONREFUNDABLE per the IRS. Here is a great summary from TurboTax:

    “If you end up with a bigger credit than you have income tax due—a $3,000 credit on a $2,500 tax bill, for instance—you can’t use the credit to get money back from the IRS. Instead, generally, you can carry the credit over to the following tax year. However, it is not yet clear whether you can carry unused credits to years after the solar credit expires.”

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