What this line means
A credit equal to 30% of the cost of qualified clean energy property you installed in your home. This covers solar electric panels, solar water heaters, fuel cells, small wind turbines, geothermal heat pumps, and battery storage technology with a capacity of at least 3 kilowatt-hours. There is no annual dollar cap on this credit (except for fuel cells, capped at $500 per half kilowatt of capacity). You calculate it on Form 5695, Part I.
Does this apply to you?
- You installed solar panels on your primary or secondary residence during the year
- You installed a solar water heating system for domestic use (not swimming pools)
- You installed a geothermal heat pump, small wind turbine, or fuel cell system at your home
- You installed battery storage technology with at least 3 kWh capacity at your home
Easy to overlook
Unused credit carries forward indefinitely This is a nonrefundable credit — it cannot reduce your tax below zero. But unlike most nonrefundable credits, the unused portion carries forward to future tax years until fully used. 1 A homeowner who installs a $30,000 solar system gets a $9,000 credit. If their tax liability is only $5,000, the remaining $4,000 carries to the next year. Filers sometimes assume the excess is lost and do not file the carryforward. General filing pattern — unused credit carried forward to next year
The credit applies to your second home too Qualified clean energy property installed on a second home (vacation home) qualifies for the credit, as long as it is located in the United States. 2 Rental properties do not qualify — the home must be used as a residence by you. A vacation cabin with solar panels qualifies; a rental property with solar panels does not. IRS Form 5695 Instructions — Residential Energy Credits, Part I
Watch out for this
Including the cost of a new roof in the credit calculation. The credit covers only the solar energy system and its installation, not structural modifications. If you replaced your roof to support solar panels, the roof cost is not part of the credit. Only the cost of the solar panels, inverters, wiring, mounting hardware, and installation labor directly related to the energy system qualifies.
Footnotes
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IRS Form 5695 Instructions, Part I - Residential Clean Energy Credit, Carryforward. https://www.irs.gov/instructions/i5695 ↩
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IRS Form 5695 Instructions, Part I - Qualified Solar Electric Property Costs. https://www.irs.gov/instructions/i5695 ↩