1. Calculate Qualified Expenses
Enter the total qualified solar installation costs (or other eligible residential energy improvements) on line 1 of Form 5695. This includes expenses like solar panels, solar water heaters, or fuel cells.
2. Compute the Credit Amount
Multiply your qualified expenses by 30% (for systems installed in 2022-2032) and enter the result on line 6b. For fuel cells, the credit is limited to $500 per 0.5 kW of capacity.
3. Determine Tax Liability
Check your total tax liability (from Form 1040, line 18) to confirm you have sufficient liability to claim the full credit. Use the worksheet on page 4 of Form 5695 instructions to factor in other credits (e.g., EV, adoption) and calculate your maximum allowable credit.
4. Compare and Apply Credits
- Line 13 vs. Line 14: Enter the smaller value on line 15 (your current-year credit).
- Carry Forward Excess: If your credit exceeds your liability, subtract line 15 from line 13 and enter the remainder on line 16 to claim in future years.
5. Handle Special Situations
- Multiple Homes: Complete separate Form 5695 for each main home, then combine line 30 totals.
- Co-Ownership: Allocate credits proportionally based on your share of expenses and check box 32a with an attached explanation.
6. Transfer to Tax Return
Add the credit from line 15 to Schedule 3 (Form 1040), line 5 and Form 1040, line 21.
Deadline: File Form 5695 for the tax year the system was installed (e.g., install in May 2024 → file with your 2024 return by April 2025).
Documentation: Keep receipts and manufacturer certification statements for your records.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-main-steps-to-complete-form-5695/
