IRS Form 5695: Residential Clean Energy and Home Improvement Credits

IRS Form 5695 is the form you use to calculate and claim the two federal residential energy credits: the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit. Both credits were terminated for property placed in service or expenditures made after December 31, 2025, under the One Big Beautiful Bill Act signed on July 4, 2025.¹ You still need Form 5695 if you finished qualifying work by that date, or if you have unused Residential Clean Energy Credit carrying forward from a prior year.

Who Still Needs to File Form 5695

Two situations keep the form in play. First, if you installed qualifying property during 2025, you’ll file Form 5695 with your 2025 return to claim your credit. Second, if you claimed the Residential Clean Energy Credit in a prior year but your tax liability wasn’t large enough to absorb the full amount, Form 5695 is how you carry that unused credit forward. The IRS instructions specifically tell you to file the form even in a year you can’t use any credit, just to preserve the carryforward.²

The timing rules on the sunset are strict. For the Residential Clean Energy Credit, an expenditure is treated as “made” when installation is completed, not when you paid or signed a contract. Solar panels or a heat pump paid for in October 2025 but installed in January 2026 do not qualify. For new construction, the expenditure is treated as made when you first use the structure. There are no transition rules or grandfathering provisions for either credit.¹

Part I: The Residential Clean Energy Credit

Part I of Form 5695 handles the Residential Clean Energy Credit, worth 30% of the total cost of qualified renewable energy property, including labor and installation, for expenditures made through December 31, 2025.³ There is no annual dollar cap on the total credit, with one exception: fuel cell property is capped at $500 per half-kilowatt of capacity.²

What Qualifies

Solar electric panels that generate electricity for your home
Solar water heaters, where at least half the energy comes from the sun
Wind turbines that generate electricity at your residence
Geothermal heat pumps that use ground heat for heating and cooling
Battery storage technology with a capacity of at least 3 kilowatt-hours³
Fuel cell property that generates electricity through an electrochemical process

All property must be new. Used or previously owned equipment does not qualify.³ The credit applies to your main home or a second home. Property used solely for business is excluded.

Carrying Unused Credit Forward

This credit is nonrefundable, but unlike its counterpart in Part II, it carries forward. If your tax liability isn’t large enough to absorb the full credit in one year, the difference rolls to the next.² The termination of the credit for post-2025 installations does not erase existing carryforwards. Any unused amount from 2024 or 2025 remains available to reduce your future tax bills, and you’ll file Form 5695 in each year you have a balance to keep it moving.

Part II: The Energy Efficient Home Improvement Credit

Part II covers 30% of the cost of qualifying energy efficiency improvements installed at your principal residence through December 31, 2025. The maximum annual credit is $3,200, split across specific sub-limits.⁴ This credit is nonrefundable and has no carryforward, so any amount exceeding your tax liability in the year of installation is lost.

The Dollar Caps

The $3,200 maximum comes from two stacking groups:

Up to $1,200 combined for exterior doors, windows, skylights, insulation, and home energy audits. Within that $1,200, windows and skylights are capped at $600, exterior doors at $500 total with a $250 per-door limit, and home energy audits at $150.⁴
Up to $2,000 separately for heat pumps, heat pump water heaters, and biomass stoves or boilers. This $2,000 sits outside the $1,200 cap, which is how the total reaches $3,200.⁵
Up to $600 per item for electrical panel upgrades, sub-panels, branch circuits, and feeders with a capacity of 200 amps or more. These fall inside the $1,200 group.⁴

These are annual limits, not lifetime limits. Taxpayers who spread improvements across multiple years through 2025 could claim the full credit in each qualifying year.

When Labor Counts and When It Doesn’t

You can include installation labor for HVAC equipment and related residential energy property: heat pumps, central air conditioners, water heaters, furnaces, boilers, biomass stoves, and electrical panel upgrades. You cannot include labor for windows, skylights, exterior doors, or insulation materials.⁶ For those items, only the product itself counts. If your contractor’s invoice combines everything, ask for an itemized breakdown.

Home Energy Audits

A professional home energy audit qualifies for a credit of up to $150, inside the $1,200 group. The audit must produce a written report identifying the most cost-effective efficiency improvements for your home, with estimated energy and cost savings. The auditor must be certified through a Department of Energy-approved certification program, and the report must include the auditor’s name, taxpayer identification number, and the name of the certification program.⁴

Principal Residence Only

This credit applies only to your main home. Improvements at a vacation home, rental property, or property used solely for business don’t qualify. You also have to own the home; renters are ineligible.²

How Rebates and Subsidies Change Your Numbers

If you received a rebate, subsidy, or other incentive, you may need to reduce your qualifying expenses before applying the 30%. Utility company subsidies for buying or installing clean energy property must always be subtracted from your qualified expenses, whether they go to you or to your contractor. Manufacturer, distributor, or installer rebates must also be subtracted when the rebate is tied to the cost of the property and comes from someone connected to the sale.⁴

State incentives are different. Many state programs are labeled “rebates,” but unless the payment actually qualifies as a purchase price adjustment under federal tax law, you don’t subtract it from your qualified costs. Those state payments may count as taxable income on your federal return instead.⁴ Net metering credits for electricity you sell back to the grid don’t affect your qualified expenses.

Documentation and the QMID Requirement

You don’t mail supporting documents with the return, but keep them. Save receipts, invoices showing dates and amounts, and the manufacturer’s written certification that each product meets the applicable energy efficiency standards.²

For the Energy Efficient Home Improvement Credit, property installed in 2025 requires a Qualified Manufacturer Identification Number, a four-character alphanumeric code specific to each qualifying product. Enter the QMID on the applicable lines for exterior doors, windows, skylights, and qualified energy property like heat pumps and central air conditioners.² If the QMID isn’t on your product paperwork, the manufacturer or installer can supply it. A missing QMID can delay processing or result in a denied credit.

How Form 5695 Flows Onto Your Return

Part I steps through the Residential Clean Energy Credit: enter costs by category, total them, apply the 30% rate, and compare against your tax liability limit using the worksheet in the instructions. Part II handles the Energy Efficient Home Improvement Credit: enter costs by category, and the form applies the 30% rate and the specific dollar caps before running its own liability limit worksheet.²

Both credits then flow 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. The combined total on Schedule 3 reduces your tax on Form 1040.⁷ Attach the completed Form 5695 to your return.

Basis Adjustment When You Sell

Claiming the Energy Efficient Home Improvement Credit reduces the cost basis of your home by the amount of credit received. If you claimed $3,200 in credits and later sell the house, your basis is $3,200 lower, which could slightly increase a taxable gain on the sale.⁸ For most homeowners, the $250,000 single and $500,000 married exclusion on home sale gains absorbs any effect. If you’re close to those thresholds, track the reduction. The Residential Clean Energy Credit under Section 25D does not contain the same basis-reduction rule.⁹

1
Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under the One Big Beautiful Bill
2
Internal Revenue Service. Instructions for Form 5695 (2025)
3
Internal Revenue Service. Residential Clean Energy Credit
4
Internal Revenue Service. Energy Efficient Home Improvement Credit
5
Internal Revenue Service. Frequently Asked Questions – Energy Efficient Home Improvement Credit – Qualifying Residence
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Internal Revenue Service. Frequently Asked Questions – Energy Efficient Home Improvement Credit – Labor Costs
7
Internal Revenue Service. Form 5695 – 2025 Residential Energy Credits
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Office of the Law Revision Counsel. 26 U.S. Code 25C – Energy Efficient Home Improvement Credit
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Office of the Law Revision Counsel. 26 USC 25D – Residential Energy Efficient Property