Tax Form 5695: Parts, Limits, and Residential Energy Credits

Form 5695 is the IRS form you file with your Form 1040 to calculate and claim residential energy tax credits.¹ It handles two separate credits on a single form: the Residential Clean Energy Credit under Section 25D, for solar, wind, geothermal, fuel cells, and battery storage; and the Energy Efficient Home Improvement Credit under Section 25C, for insulation, windows, doors, heat pumps, and similar upgrades. Both credits are worth 30% of eligible costs, but the dollar limits, labor rules, and carryforward treatment differ sharply between them. Federal legislation ended both credits for expenditures made after December 31, 2025, so if you’re filing for tax year 2025 or claiming a carryforward from a prior installation, this is still your form.²

What the Two Parts of the Form Cover

Part I calculates the Residential Clean Energy Credit. It applies to solar electric panels, solar water heaters (not for pools), small wind turbines, geothermal heat pumps, fuel cells, and battery storage technology with at least 3 kilowatt-hours of capacity.³ The credit equals 30% of your total eligible costs, including both equipment and installation labor, with no annual or lifetime cap (fuel cells excepted). A $30,000 rooftop solar installation produces a $9,000 credit, straight through.

Part II calculates the Energy Efficient Home Improvement Credit. It applies to smaller efficiency upgrades: exterior windows and skylights, exterior doors, insulation and air sealing, central air conditioners, heat pumps, heat pump water heaters, biomass stoves and boilers, and certain water heaters.⁴ The rate is also 30%, but strict annual caps limit what actually reaches your return.

The Part II Annual Limits That Trip People Up

The Part II credit runs on layered caps. The general annual maximum is $1,200. Heat pumps, heat pump water heaters, and biomass stoves and boilers have a separate $2,000 bucket that sits on top of that, so a taxpayer installing a qualifying heat pump plus new windows in the same year could claim up to $3,200.⁵

Inside the $1,200 general limit, individual items have their own sub-caps:⁴

Exterior windows and skylights: $600 total across all units
Exterior doors: $250 per door, $500 total
Home energy audits: $150
Other qualifying energy property (central AC, water heaters, and similar): $600 per item
Heat pumps, heat pump water heaters, biomass stoves and boilers: $2,000 combined, separate from the $1,200 cap

The math often surprises people. Replacing every window in a house might cost $15,000, and 30% of that is $4,500, but the windows sub-cap holds the credit to $600. There is no lifetime ceiling, so the caps reset each tax year.

Who Can Claim the Credits

Residency rules differ by part, and the difference matters. Under Part II, building envelope improvements (windows, doors, insulation) must be installed at your principal residence, which must be an existing home located in the United States. For residential energy property under Part II (heat pumps, AC systems, and similar equipment), the rule loosens: the dwelling must be a U.S. home you use as a residence, but it doesn’t have to be your main home.⁵

Part I is the most flexible. Solar, wind, geothermal, and battery storage can go on any U.S. home you own, including a second home or vacation property, and the credit applies to both new construction and existing homes.³ Fuel cells are the one exception in Part I: they must be installed at your principal residence.

Renters can qualify too. The IRS confirms that renters may claim credits for qualifying improvements they pay for in the home they live in.⁶ In practice this covers Part II items a tenant might buy, such as a heat pump water heater, not rooftop solar on a landlord’s building.

If part of the home is used for business, a 20% threshold applies. Business use of 20% or less lets you claim the full credit. Above 20%, you claim only the personal-use share of the costs. A home office taking up 30% of the house yields a credit on 70% of the improvement.⁴

When Labor Counts and When It Doesn’t

Under Part I, labor and installation costs are eligible for the 30% credit alongside equipment.²

Under Part II, the answer depends on the type of improvement. For building envelope components (windows, skylights, doors, insulation, air sealing), only the cost of the materials counts. Installation labor is not eligible.⁴ If you paid $8,000 for new windows and $4,000 of that was installation, your credit base is $4,000, not $8,000. For residential energy property (central AC, heat pumps, biomass stoves, heat pump water heaters), labor for on-site installation is included.⁵

Part II equipment must also meet efficiency standards. Residential energy property must meet or exceed the highest efficiency tier (not counting any advanced tier) set by the Consortium for Energy Efficiency at the start of the installation year. Windows and skylights must meet Energy Star Most Efficient certification; doors must meet Energy Star requirements.⁴

The $150 home energy audit credit has its own rules. The audit must produce a written report identifying cost-effective efficiency improvements with energy and cost estimates. Starting in 2024, the auditor must be certified by a Department of Energy-recognized program, and the written report must include the auditor’s name, taxpayer identification number, and certification attestation.⁴

Documentation to Gather Before You File

Pull these records together before you start the form:

Itemized receipts that separate equipment costs from labor charges. This split controls what you can claim on building envelope items under Part II.
The Manufacturer’s Certification Statement for each qualifying product. Manufacturers post these on their websites; keep the statement with your tax records rather than filing it with your return.⁷⁸
The written energy audit report, if you’re claiming that $150 credit.⁴
Your prior year Form 5695 if you have unused Residential Clean Energy Credit to carry forward.

How to Complete and File the Form

Form 5695 doesn’t file alone. It attaches to your Form 1040 or Form 1040-SR.¹ Tax software walks you through the questions and populates the form. Paper filers include the completed form with the return.

Part I steps through each type of clean energy property on its own line: solar electric, solar water heating, small wind, geothermal, fuel cells, and battery storage. The form totals your costs, multiplies by 30%, and adds any carryforward from a prior year. Part II sorts your Part II expenses into building envelope costs and residential energy property costs, applies the item-level caps, and produces a final credit bounded by the $1,200 and $2,000 annual limits.⁹

The credit amounts from Form 5695 then transfer to Schedule 3 of Form 1040. The Residential Clean Energy Credit goes on Schedule 3, line 5a. The Energy Efficient Home Improvement Credit goes on line 5b.¹⁰ From there the total flows into your return and reduces your tax.

Carryforwards, Refundability, and the 2025 Cutoff

Both credits are nonrefundable. They can reduce your tax to zero, but neither generates a refund beyond what you already paid in.

The Part II credit has no carryforward. Any unused portion is lost when the tax year closes.⁴

The Part I credit carries forward. If your Residential Clean Energy Credit exceeds your tax liability, the unused amount rolls into the next tax year automatically.² That’s the reason many taxpayers will keep using Form 5695 into 2026 and later years even though no new expenditures qualify: a 2025 solar installation whose 30% credit couldn’t be fully absorbed on the 2025 return continues onto the next return, and the next, entered on the form’s carryforward line.

The cutoff itself is firm. Both credits terminated for expenditures made after December 31, 2025.²⁴ Solar panels installed in December 2025 qualify. The same panels installed in January 2026 do not. Form 5695 remains the correct form for any qualifying work completed on or before that date and for prior-year carryforwards claimed on a later return.

1
Internal Revenue Service. About Form 5695, Residential Energy Credits
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Office of the Law Revision Counsel. 26 USC 25D Residential Clean Energy Credit
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Internal Revenue Service. Residential Clean Energy Credit
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Internal Revenue Service. Energy Efficient Home Improvement Credit
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Office of the Law Revision Counsel. 26 USC 25C Energy Efficient Home Improvement Credit
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Internal Revenue Service. Home Energy Tax Credits
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ENERGY STAR. Tax Credit Definitions
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Internal Revenue Service. Energy Efficient Home Improvement Credit Qualified Manufacturer Requirements
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Internal Revenue Service. Instructions for Form 5695
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Internal Revenue Service. Residential Energy Credits