Claiming the Solar Investment Tax Credit Over Two Tax Cycles

Please keep in mind: The team at Envirosolar Power is composed of solar professionals, we therefore do not give out tax advice. This page is used merely as an example of a hypothetical. Taxes differ for each person and anything here may not be appropriate to you. Not everyone will be eligible, therefore contact a tax professional when filing your tax credit.

First you’ll need download, print and fill out the IRS 5695 Form, “Residential Energy Credits”. Here, you’ll state the cost of your solar system and calculate the value of the credit. Along with that will be the amount of the credit that you will be able to claim. Here is a hypothetical walkthrough.

  • On line 1, enter the value of your total solar system installation cost.
    For our example we will value ours at $30,000
  • If you also installed a solar water heating system, a small wind turbine, or a geothermal heat pump or anything of that nature, include these values on lines 2-4.
    Example: We are just doing solar, no other tax credits claimed therefore 0 for each line.
  • On line 5, add everything up from lines 1-4.
    Example:Stays at $30,000
  • On line 6, multiply this amount by 0.30 to determine the exact amount of your credit.
    Example:This yields $9,000 on our $30,000 system.
  • On line 13, simply repeat this amount, unless you are adding any tax credits carried over from the previous year (lines 11 and 12).
    Example:Stays at $9,000

Line 14 can be a bit tricky to some home owners. You need to use the “Residential Energy Efficient Property Credit Limit Worksheet” on page 4 of the instructions for Form 5695 to see if there are any limits on the tax credits you can claim. This varies from person to person.

  • On line 1, enter your total federal tax liability from Form 1040, line 47.
    Example:Let’s assume a $4,500 tax liability for our system.
  • On lines 2-9, enter additional tax credits you are claiming. These might include tax credits for interest on a mortgage, buying a home for the first time, or buying a plug-in hybrid or electric vehicle. If you aren’t claiming anything else, write 0 for each line.
    Example:For our example we are not going to claim any additional tax credits.
  • On line 10, add the value of all of these other credits.
    Example:Again we will assume 0.
  • On line 11, subtract the value of these additional credits from your tax liability from line 1 to find the limit on the credit you can claim for this year.
    Example:Ours remains at $4,500.

Now that you’ve done the math on how much of the ITC you can claim this year, return to Form 5695 and record the limit. Then calculate how much of your tax credit you’ll carry over to next year’s taxes.

  • On line 14, enter the value from line 11 of the worksheet.
    Example:$4,500
  • On line 15, enter whatever is lower between line 13 (total credit) and line 14 (the limit).
    Example:$4,500
  • On line 16, subtract line 15 from line 13 to calculate the carry-forward tax credit for the following year’s taxes.
    Example:$4,500 (This is reach by $9,000 minus $4,500).

For this example, we only owes $4,500 in taxes this year, meaning that’s all the credit we can take now. The difference (in this case $4,500) can be carried over to next year.

Now that you’ve finished Form 5695, we can apply this to Form 1040. Take the number from line 15 of Form 5695 ($4,500 in this example) and enter it on line 53, which is marked as Residential energy credits.

**If you’re submitting Form 1040NR, this is found on line 50.

And that is it! That brings you to the end on this cursory walkthrough for claiming your tax credits over two years. We hope this helps the process and makes it clear exactly how much money you can save with solar!