This article from AIM Financial is IRS Form 5695: Residential Energy Credits. This is especially relevant for homeowners preparing 2025 tax returns: the IRS says the residential clean energy credit and energy-efficient home improvement credit generally do not apply to qualifying expenditures or property after December 31, 2025. Eligible earlier installations and certain residential clean energy credit carryforwards may still need to be reported.

Tax guide from AIM Financial

If you installed solar panels, a geothermal heat pump, energy-efficient windows, insulation, or other qualifying energy improvements at your home, you may have questions about whether you can claim a federal tax credit. IRS Form 5695, Residential Energy Credits, is the form taxpayers use to calculate two major residential energy tax credits.

For homeowners in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan, understanding Form 5695 can help when preparing a federal income tax return for eligible home improvements completed in 2025 or earlier.

However, federal tax legislation enacted in 2025 accelerated the expiration of both credits. Understanding the deadlines and documentation requirements is now particularly important.

What Is IRS Form 5695?

IRS Form 5695 is used to calculate residential energy credits and report eligible amounts on an individual federal income tax return.

The form covers two separate credits:

• Residential Clean Energy Credit: Previously available for certain qualifying solar electric systems, solar water heaters, geothermal heat pumps, small wind energy systems, fuel cell property, and battery storage technology.
• Energy Efficient Home Improvement Credit: Previously available for certain qualifying insulation, exterior windows and doors, heating and cooling equipment, water heaters, electrical panel improvements, and home energy audits.

Each credit has different qualifying expenses, limits, and eligibility requirements. Homeowners should not assume that every energy-related purchase or renovation qualifies.

Official guidance is available from the IRS at https://www.irs.gov/instructions/i5695. <Cite refs={[“turn617538search0″,”turn617538search8”]}/>

Important Deadline: December 31, 2025

Federal legislation shortened the availability of both residential energy credits.

Under the current rules, the Residential Clean Energy Credit generally is unavailable for expenditures made after December 31, 2025. The Energy Efficient Home Improvement Credit generally is unavailable for property placed in service after December 31, 2025.

This means that paying a deposit or signing a contract in 2025 did not necessarily preserve eligibility for a project completed in 2026.

For the residential clean energy credit, the IRS generally treats an expenditure as made when the original installation is completed. For the energy-efficient home improvement credit, the property generally must have been placed in service by the deadline. Special rules may apply to particular situations.

Homeowners who completed qualifying installations before the deadline may still need to claim eligible credits on the appropriate tax return. Eligible residential clean energy credit carryforwards may also remain relevant on a later return. <Cite refs={[“turn617538search0″,”turn617538search1″,”turn617538search23”]}/>

What Qualified for the Residential Clean Energy Credit?

Before the expiration date, the Residential Clean Energy Credit generally equaled 30% of qualifying costs for eligible property, subject to specific rules and limitations.

Potentially qualifying property included:

Solar electric panels: Certain solar energy systems installed to generate electricity for a qualifying residence.

Solar water heaters: Eligible solar equipment used to heat water, subject to applicable certification requirements.

Geothermal heat pumps: Qualifying systems that use the earth’s energy to heat and cool a home.

Small wind energy systems: Certain qualifying residential wind equipment.

Battery storage technology: Qualifying battery storage with a capacity of at least three kilowatt-hours, subject to the applicable requirements.

Fuel cell property: Certain qualifying fuel cell systems, which have their own eligibility requirements and credit limitations.

Eligible costs could include qualifying equipment and certain labor associated with onsite preparation, assembly, installation, and necessary piping or wiring. Traditional roofing or structural components that do not themselves qualify as energy property generally cannot simply be included in the calculation.

The credit was generally nonrefundable, meaning it could reduce eligible federal income tax but could not by itself create a refund beyond the applicable tax liability. Unused residential clean energy credit amounts may be eligible for carryforward treatment under the applicable rules. <Cite refs={[“turn617538search8″,”turn617538search10″,”turn617538search23”]}/>

What Qualified for the Energy Efficient Home Improvement Credit?

The Energy Efficient Home Improvement Credit was designed to encourage qualifying improvements to existing homes.

Eligible categories could include:

• Insulation and air-sealing materials.
• Certain energy-efficient exterior windows and skylights.
• Qualifying exterior doors.
• Certain central air conditioners.
• Eligible furnaces and hot water boilers.
• Certain water heaters.
• Qualifying heat pumps and heat pump water heaters.
• Certain biomass stoves and boilers.
• Qualified home energy audits.
• Certain electrical panel, subpanel, circuit, and feeder improvements associated with qualifying energy property.

The credit generally equaled 30% of eligible costs, but specific annual limits applied. For example, the general annual limit was typically $1,200 for many qualifying improvements, while certain heat pumps, heat pump water heaters, and biomass equipment could qualify for a separate limit of up to $2,000. Other individual and combined limits applied to windows, doors, audits, and other property.

These limits did not mean every homeowner could claim the maximum amount. The actual credit depended on the qualifying property, eligible expenses, and any applicable annual limits. <Cite refs={[“turn617538search0″,”turn617538search22”]}/>

How Do You Complete IRS Form 5695?

If you are preparing a return involving eligible installations, the following steps can help you organize the information.

Step 1: Identify the type of improvement. Determine whether the expense belongs under the Residential Clean Energy Credit or the Energy Efficient Home Improvement Credit.

Step 2: Verify the installation date. Gather records showing when the qualifying property was installed or placed in service. The applicable deadline is critical.

Step 3: Gather receipts and invoices. Collect equipment invoices, contractor statements, proof of payment, and itemized installation costs.

Step 4: Check product eligibility. Confirm that the property meets the applicable technical requirements. For certain specified energy-efficient products placed in service during 2025, the IRS required a qualified manufacturer identification number, or QMID, on the return.

Step 5: Calculate the credit. Use the appropriate section of Form 5695 and apply the relevant percentages, annual limits, and other restrictions.

Step 6: Review any carryforward. If you have an eligible unused Residential Clean Energy Credit from an earlier year, review the applicable Form 5695 instructions to determine how it should be reported.

Form 5695 is generally filed with Form 1040 or another applicable individual income tax return. The credit calculations and reporting should follow the instructions for the tax year involved. <Cite refs={[“turn617538search0″,”turn617538search23”]}/>

What Records Should Homeowners Keep?

Maintain records supporting the credit calculation, including:

• Purchase receipts and contractor invoices.
• Installation and completion dates.
• Equipment descriptions and manufacturer information.
• Qualified manufacturer identification numbers when required.
• Proof of payment and eligible labor costs.
• Documentation of any utility subsidies that may reduce eligible costs.
• Copies of previous tax returns showing a residential clean energy credit carryforward.

These records can help support the claim if the IRS asks questions about the installation or calculation.

How AIM Financial Can Help With Residential Energy Tax Credits

Energy-related tax provisions can be complicated, especially when a homeowner has several improvements, multiple contractors, or an unused credit from a previous year.

AIM Financial helps individuals and families in Grand Rapids, Kentwood, Wyoming, and throughout West Michigan prepare tax returns and understand the documentation needed for applicable federal tax benefits.

If you installed qualifying energy property in 2025 or an earlier year, gather your invoices, installation records, and previous tax returns before filing. AIM Financial can help you review the information and determine how eligible credits or carryforwards should be addressed on your return.

Contact AIM Financial for tax preparation assistance and get help organizing your residential energy credit information.

For official requirements and current instructions, visit https://www.irs.gov/forms-pubs/about-form-5695.

This article is for general educational purposes only and is not individualized tax advice. Eligibility depends on the installation, dates, property, expenses, and applicable tax-year rules.