Sick of High Energy Bills? Uncle Sam Gives You Credit

A step-by-step guide on filing IRS Form 5695 – the Residential Energy Credits form.

We think you’ll love Form 5695, the Residential Energy Credits form. It’s hard not to love it. You can apply for a credit limited to 30% of your investment (but not more than $1,500), save a lot of your energy consumption and costs, and filling in Form 5695 is very easy.

Here’s great news if you are a “green thinker” and invest in a qualified solar, geothermal or wind power source: the 30% threshold is the same, but there is no $1,500 limit for your credit.

In order to qualify, the property has to be your main home (so not a holiday home, for example) and be located in the U.S.

The form is divided in two parts, the non-business energy property credit (refers to window, insulation or boiler costs, only for existing structures) and the residential energy efficient property credit (refers to alternative energy investments, including structures that are being built).

Make Your Home More Energy-Efficient

Let’s tackle Form 5695. Begin by entering your name and social security number. Line 1 is just a check box where you verify that you want the credit for your main home, located in the United States (otherwise, you don’t qualify for the credit). On Line 2, write down the amounts you paid for energy-related improvements to your home, like insulation (Line 2a), exterior windows (Line 2b), exterior doors (Line 2c), new or improved roofing (Line 2d). All these have to meet the Energy Star program requirements.

On Line 3, you can add any residential energy property costs, for example amounts you paid for an energy-efficient electric heat pump or air conditioner (that meets the requirements of the Consortium for Energy Efficiency), a natural water heater running on gas or oil (that has an energy factor of more than .8, or a 90% thermal efficiency).

Add everything on Lines 2a through 3c and enter the result on Line 4. Multiply this amount by .30 (30%) and write the result on Line 5. On Line 6, you enter the maximum credit amount of $1,500 and on Line 7 you have to enter the amount from your 2009 Form 5695, if applicable.

Subtract the amount on Line 7 from the one on Line 6, enter the result on Line 8 and then write the amount from Line 5 or Line 8 (whichever is smaller) on Line 9. Do the math. To get the maximum credit ($1,500) you have to spend at least $5,000 on your energy efficiency improvement (it’s not a difficult task after all, seeing how expensive these materials are).

To calculate the amount that has to be put on Line 10, go to the last page of Form 5695 and fill in the Credit Limit Worksheet. On Line 11, you enter the total amount of your credit (the smaller amount from Line 9 or Line 10). Make sure you also write the result on Line 52 of your Form 1040 or Line 49 of your Form 1040NR.

Go Green and Cash in on Your Credit

On Lines 12-15, enter the amount you paid for solar, wind or geothermal power sources, add everything up and enter the total on Line 16. Multiply Line 16 by 0.3 (30%) and enter the result on Line 17. If you installed a qualified fuel cell to convert fuel into electricity, enter the amount on Line 18. Multiply that amount by 0.3 (30%) and enter the result on Line 19. Take the capacity (in kilowatts) of your fuel cell, multiply it by $1,000 and write the result on Line 20. Pick the smaller amount of Line 19 or Line 20 and enter it on Line 21.

Go to Line 22 and enter the amount of your credit carry-forward from 2009, if applicable (you can find it on Line 28 of your 2009 Form 5695).

Then, add up the amounts on Lines 17, 21 and 22 and enter the result on Line 23. On Line 24, enter the amount from Line 46 from your Form 1040 (or Line 44 of Form 1040NR).

Line 25 looks a little intimidating. What is it all about? If you file a Form 1040 or a 1040NR, this is the place where you have to enter the amount of any other energy-related credits. Figure out the amount and then subtract it from Line 24. If it’s zero or less, enter zero on Line 26 and Line 27 (no credit for you!). If it’s above zero, then that’s your residential energy credit. Enter it on Line 27 and include it on Line 52 of your Form 1040 or Line 49 of your Form 1040NR.

To establish any credit carry-forward to 2016, subtract the amount on Line 27 from the one on Line 23 (if the amount on Line 27 is lower than the one on Line 23) and enter the result on Line 28.

To Sum Up

Are you among the visionaries who want to spend more now and reduce their energy bills in the future? Uncle Sam wants to help, so why not cash 30% of your investment?