Per IRS Instructions for Form 5695:

The Consolidated Appropriations Act, 2021:

1. Extends the residential energy efficient property credit to qualified biomass fuel property costs on line 5, and provides definitions in these instructions.
2. Extends the 26 percent residential energy efficient property credit rate to property placed in service in 2021.
3. For property placed into service from January 1, 2022 to December 31, 2022 the rate will be 30 percent for such property.
4. Disallows the nonbusiness energy property credit for a stove which uses the burning of biomass fuel on line 22a, and we deleted the related definitions from these instructions.
5. Extends the balance of the nonbusiness energy property credit to property placed in service in 2021.

Purpose of Form

Use Form 5695 to figure and take your residential energy credits. The residential energy credits are:

• The residential energy efficient property credit, and
• The nonbusiness energy property credit.

Also use Form 5695 to take any residential energy efficient property credit carryforward from 2020 or to carry the unused portion of the credit to 2023.

CAUTION! Only the residential energy efficient property credit (Part I) is available for both existing homes and homes being constructed. The nonbusiness energy property credit (Part II) is only available for existing homes.

The U.S. Code and the instructions for Form 5695 do not clearly state whether home ownership is necessary for the residential energy efficient property credit. However, other IRS publications often refer to homeowners when discussing the credit.

For a list of improvements that qualify for the credits, go to the Energy Star Federal Income Tax Credits and Other Incentives for Energy Efficiency webpage.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.