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.

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 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.

Here’s an example: You pay $20,000 to install a solar system on your home in 2022, 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.

Additional Solar Energy Resources

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

  1. Oscar Poleo

    The am reading about the solar credit but there are no answer for someone who gets a refund at the end of the year. I claim zero/zero so I pay quite a bit so that I can not owe, however with the interest of my home, I get about 3000 dollar every year at tax time. If I put solar in my home, does that mean I get no solar credit because I pay a great amount federal taxes and interest to my home and I receive a small refund.
    Can you let me know,
    Thank you
    Oscar Poleo

  2. slawn

    can you include the cost of a main service panel upgrade as part of the solar system for the tax credit? I’ve received conflicting information from solar installers and it isn’t clear on the IRS website. Thanks!

    1. Andres Rosario

      Yes, you can include the cost of the main service panel upgrade if done in the same fiscal Year as the install.

  3. Kathy

    I have read in your document (page 1) that the tax credit may be used on a primary OR secondary home (as long as we live in it a part of the year) and yet, the 5695 form states the credit can only be used on the main home.
    We have two homes, and live in each for equal amounts of time. For mail, and other tax reasons, (senior tax credit, etc.) we use the address of the home we don’t intend to install solar panels on.
    We want to install panels on what we call our “secondary” home and receive the tax credit.
    If this is allowed, what is meant when the term main home is used?
    We are reading conflicting information, and aren’t certain whether to move ahead or not.
    Thank you!

  4. John

    I bought a off grid solar system at the end of the year but didn’t get it up and running till 2021. Can I claim it for 2020 when I bought it or do I have to wait? Thanks

    1. Mike M

      I am not a tax Professional. However, according to the new bill passed in late 2020 that extend the 26% until 2022, if 5% of the job was done, you can still claim it.

  5. Jon

    If we paid for and started the solar project in 2020, but it wasn’t finished until January 2021, can I take the tax credit for 2020? Or do I need to wait until I do taxes for 2021 next year?

    1. Cora

      You can only claim the year it was put in service; when it was completely installed and started. That would be 2021 for you Jon.

  6. Antoinette DiAndrea

    I had my Solor system installed back in 2018 I have been unable to clam my credits, it keeps getting push to the following year, so 2018 to 2019, 2019 to 2020 and now 2020 to 2021, I am so Frustrated at this point it is the worst mistake I ever made in my life if there’s any information you can provide an assistant me how to get my credit would be greatly appreciate it.

    1. Cora

      You should do an amended tax return for 2018. or 2019 and file the Form 5695. 2019 is the 33%; not sure what is was for 2018.


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