Claiming the Solar Investment Tax Credit

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.

If you’ve determined that you’re eligible for the solar tax credit, you’ll need to fill out the IRS 5695 Form. This form is called Residential Energy Credits form. On it, you’ll state the cost of your solar system and calculate the value of the credit, as well as the amount of the credit that you will be able to claim. We’ll walk you through it with the following example.

  • On line 1, enter the value of your total solar panel system and installation.
    Example:We will be using a $30,000 system for this walkthrough.
  • If you also installed a solar water heating system, or other relevant efficiency devices, include these values on lines 2-4.
    Example:For this example we will just focus on solar. Therefore we put 0 for each line.
  • On line 5, add everything up from the previous lines.
    Example:Our amount remains at $30,000.
  • On line 6, multiply this amount by 0.30 to determine the amount of your credit.
    Example:Doing so gives us $9,000.
  • On line 13, simply repeat this amount, unless you are adding any tax credits carried over from the previous year.

Example: We stay at $9,000

Now that you’ve figured out how much your credit is worth, you’ll need to verify if there are any limits on your claim. You determine this by using the “Residential Energy Efficient Property Credit Limit Worksheet” on page 4 of the instructions for Form 5695.

  • On line 1 of the Residential Energy Efficient Property Credit Limit Worksheet section enter your total federal tax liability on line 47.
    Example:For this we will assume a $9,000 tax liability.
  • On lines 2-9, enter additional tax credits you are claiming as referred to on each line. If you aren’t claiming anything else, write 0 for each line.
    Example:For our example we will use $0
  • On line 10, add all of these other credits.
    Example:We remain at $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:Since we had $0 we remain at $9,000

Return to Form 5695 and record the limit and 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:For this we put $9,000
  • On line 15, enter whatever is lower between line 13 (your total credit) and line 14 (the limit you can claim this year).
    Example:Ours is $9,000
  • On line 16, subtract line 15 from line 13 to calculate the carry-forward tax credit for next year’s taxes.
    Example:$0 by taking $9,000 and subtracting $9,000.

In our example this example, we (the taxpayer) only owe $9,000 in taxes this year, meaning we can take the advantage of the full tax credit.

In cases where the taxpayer’s tax liability is less than the Federal Tax Credit, the difference can be carried over to next year and claimed again.

Now that you’ve finished the Form 5695, we can apply the $0 to – Form 1040. Take the number from line 15 of Form 5695 ($9,000 in our example) and enter it on line 53, “Residential energy credits” of Form 1040.

OR, if you’re submitting Form 1040NR, this is found on line 50

And that’s it!

 

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