Form 5695 Instructions: Parts I, II, and Transferring to 1040

Form 5695 is the IRS form for claiming the two federal residential energy tax credits, and the instructions for Form 5695 walk you through Part I (the Residential Clean Energy Credit, worth 30% of solar, wind, geothermal, battery, and fuel cell costs) and Part II (the Energy Efficient Home Improvement Credit, worth 30% of insulation, windows, doors, heat pumps, and similar upgrades, subject to annual dollar caps). You attach the completed form to your Form 1040, 1040-SR, or 1040-NR.¹ Both credits terminated for property placed in service after December 31, 2025, so a 2025 return is the last chance to claim a new installation.²

Before You Open the Form

Pull together receipts and invoices for every improvement, showing both the cost and the date the property was placed in service. The credit is claimed for the year the equipment was installed and operational, not the year you paid or signed a contract.

Separate materials from labor on those invoices. For residential energy property (heat pumps, central air conditioners, furnaces, water heaters, biomass equipment, electrical panel work), onsite preparation, assembly, and installation labor all count. For building envelope items (windows, doors, insulation, air sealing), only material costs count; installation labor is not eligible.³

Subtract any utility rebate, government grant, or other subsidy from your qualified costs before you enter a number on the form. The IRS treats these as purchase-price adjustments whether the money went to you or to your contractor. Net metering payments from your utility for excess electricity are not subsidies and do not reduce your costs.⁴

For any item claimed under Part II in 2025, you need a four-character Qualified Manufacturer Identification Number (QMID). This is required for doors, windows, skylights, and all residential energy property, and it must be entered on the form next to each item. The number comes from the manufacturer, and the IRS publishes a list of qualified manufacturers that have signed written agreements with the agency; not every product from a listed manufacturer qualifies, so check the specific model.⁵⁶ You also need the Manufacturer Certification Statement confirming the product meets the energy efficiency standards.

One boundary to keep in mind: the residence rules differ by improvement type. Building envelope items (windows, doors, insulation) and home energy audits must be at your principal residence that you own. Residential energy property (furnaces, central air conditioners, electrical panels, heat pumps) can go in any home you use as a residence, including a second home.⁷ Rentals you don’t live in do not qualify for either credit.

Filling Out Part I: Residential Clean Energy Credit

Part I is where solar, wind, geothermal, battery, and fuel cell costs go. Enter each type on its designated line:¹

Line 1: Solar electric property costs
Line 2: Solar water heating property costs
Line 3: Small wind energy property costs
Line 4: Geothermal heat pump costs
Line 5a/5b: Battery storage technology costs (capacity must be at least 3 kilowatt-hours)

The property must be new and installed at a home in the United States that you use as a residence. Fuel cell property is capped at $500 per half kilowatt of capacity.⁴

Add Lines 1 through 5b on Line 6a, then multiply by 0.30 on Line 6b. That is your tentative credit for property placed in service in 2025. If you have an unused Residential Clean Energy Credit carrying forward from your 2024 return (the amount on Line 16 of that year’s Form 5695), enter it on Line 12. Line 13 combines Lines 6b, 11, and 12 into your total potential credit.¹

Line 14 is your tax liability limit. To compute it, use the Residential Clean Energy Credit Limit Worksheet in the instructions, which starts with your total tax from Form 1040, Line 18, and subtracts other nonrefundable credits you have already claimed such as the child tax credit and foreign tax credit.⁵

Line 15 is the smaller of Line 13 or Line 14: that is the credit you actually claim this year. If Line 13 exceeds Line 14, the difference lands on Line 16 as a carryforward to your 2026 return. This matters even though no new Residential Clean Energy Credit can be earned after 2025: a large 2025 solar installation can absorb your tax liability for several years, and Line 16 is the mechanism that lets it.¹

Condominium and Cooperative Owners

If you own a condo unit or are a tenant-stockholder in a cooperative and the building installed qualifying clean energy property, you can claim your proportionate share. The 2025 form has a checkbox in Part I for indicating a fractional share of the building’s qualified expenses.⁵

Filling Out Part II: Energy Efficient Home Improvement Credit

Part II handles the efficiency upgrades. Instructions for 2025 split it into two groups: building envelope improvements and residential energy property. Each line takes your cost, applies the 30% multiplier, and caps the result at the applicable sublimit. Insulation costs, for instance, go on Line 18a; Line 18b limits the result to the $1,200 group cap.¹

The overall annual cap is $3,200, made up of two stacked buckets:⁸

Up to $1,200 combined for building envelope items and standard equipment, with sublimits of $600 for all windows and skylights, $250 per door and $500 for all doors, $600 per item for furnaces, boilers, central air conditioners, water heaters, and electrical panel upgrades (200-amp or greater), and $150 for a home energy audit.²
Up to $2,000 for heat pumps, heat pump water heaters, and biomass stoves or boilers. Biomass equipment must have a thermal efficiency rating of at least 75%.⁹

Heat pump and other $2,000-cap costs go on Line 22a and its companion lines. The 2025 form adds a line to document the link between an electrical panel upgrade (the enabling property) and the equipment it supports (the enabled property), so keep that pairing straight in your notes.⁵ Enter QMIDs in the designated fields beside each qualifying item.

A home energy audit claimed for the $150 credit must be performed by an auditor certified through a Department of Energy-recognized program, and the auditor must give you a signed written report with their name, taxpayer identification number, and the name of the certification program.⁸

Your total Part II credit ends up on Line 30 after the form enforces the sublimits and the $1,200 and $2,000 caps. Line 31 applies a tax liability limit using its own worksheet. Anything above your tax liability is lost: this credit has no carryforward.⁸ That is one reason to time large efficiency projects for a year with enough tax on the return to absorb them.

Business Use of the Property

If any qualified item is used partly for business, the treatment depends on how much. At 20% or less business use, you can claim the full credit. Above 20%, you can only claim the portion allocable to residential use.⁷

Moving the Credits to Your 1040

Line 15 (your allowed Residential Clean Energy Credit) transfers to Schedule 3 (Form 1040), Line 5a. The Energy Efficient Home Improvement Credit from Line 30 also flows through Schedule 3. From there both amounts reduce the total tax on your Form 1040. Tax software handles those transfers on its own. Paper filers need to include Form 5695 with the return. The form works with Form 1040-SR (age 65 and older) and Form 1040-NR (nonresident aliens with qualifying U.S. residences) as well.¹

Both credits are nonrefundable. They can zero out your tax bill, but they will not generate a refund on their own. Only the Part I credit carries any excess forward.

Keeping the Paperwork

Hold onto receipts, manufacturer certifications, QMID documentation, and a copy of your filed Form 5695 for at least three years after you file the return claiming the credit, or two years from the date you paid the tax, whichever is later.¹⁰ If you carry Residential Clean Energy Credit forward, keep the original documentation until three years after the return that finally absorbs the carryforward. Losing a receipt for a $25,000 solar installation years later is the kind of problem that gets expensive fast.

1
Internal Revenue Service. Form 5695 – Residential Energy Credits
2
Office of the Law Revision Counsel. 26 USC 25C – Energy Efficient Home Improvement Credit
3
Internal Revenue Service. Energy Efficient Home Improvement Credit – Labor Costs
4
Internal Revenue Service. Residential Clean Energy Credit
5
Internal Revenue Service. Instructions for Form 5695 – Residential Energy Credits
6
Internal Revenue Service. Energy Efficient Home Improvement Credit Qualified Manufacturers
7
Internal Revenue Service. Energy Efficient Home Improvement Credit – Qualifying Residence
8
Internal Revenue Service. Energy Efficient Home Improvement Credit
9
ENERGY STAR. Biomass Stoves/Boilers Tax Credit
10
Internal Revenue Service. How Long Should I Keep Records