December 19th, 2023 - 9:07 am
The Internal Revenue Service (IRS) released its long-awaited update to the tax form that will be used by homeowners to claim residential energy tax credits under the Inflation Reduction Act (IRA).
Specifically, IRS Form 5695 is used by taxpayers to claim tax credits for qualified home energy efficiency improvements and for the installation of certain residential "clean energy" technologies (i.e., solar panels, geothermal heat pumps, and home batteries). These credits can be found in Sections 25C and 25D of the Internal Revenue Code (IRC), respectively. Taxpayers must have a tax liability to qualify. In June, the IRS published an infographic with basic details on the 25C and 25D credits, available here.
These credits generally total 30% of the cost of installation. Certain restrictions apply with respect to home energy efficiency improvements, which may not exceed $2,000 for the installation of a qualified heat pump or wood stove and $1,200 for other qualified home efficiency improvements and retrofits (for a combined total of up to $3,200). Of that amount, no more than $600 may be claimed for the installation of a qualified furnace or boiler. This includes oil-fired systems that meet 2021 Energy Star® efficiency standards and are certified by the manufacturer as compatible with heating oil containing at least 20-percent biofuel content.
Form 5695 applies to qualified property installed in the 2023 or 2024 tax years. The form must be updated again for the 2025 tax year due to a requirement that manufacturers provide taxpayers with a unique identification number for products that qualify for the 25C credit. That requirement will go into effect on January 1, 2025. Until then, manufacturers should provide homeowners with a document that certifies the product is eligible for the tax credit. Taxpayers should keep this document on file in case it is requested by the IRS.
The new IRS Form 5695 can be accessed online here. The IRS has also released an online chartshowing credit amounts for various qualified products, technologies, and retrofits. NEFI expects the IRS to soon publish additional updated guidance and instructions, including an update to its list of frequently asked questions published one year ago. We are also waiting for an updated Form 7205, which will be used to claim the §179D tax deduction for energy efficiency improvements to commercial, industrial, public, and large multifamily buildings. These and other IRA-related tax forms and guidance are likely forthcoming in the weeks ahead.
We strongly recommend that NEFI members and their customers consult with a tax or legal professional regarding tax credits, deductions, and other incentives they may qualify for under the Inflation Reduction Act.
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