How to claim an energy efficient home improvement tax credit – residential energy property


Use these steps for claiming an energy efficient home improvement tax credit for residential energy property.

Step 1: Check eligibility

Make sure the property on or in connection which you are installing the residential energy property is eligible:

  • Located in the United States and used by you as a residence
  • An existing home that you improve or add onto, not a new home

Make sure you are installing qualified energy property (this means property that meets the energy savings requirements discussed below, not all property will qualify for the credit):

  • Central air conditioners
  • Natural gas, propane or oil water heaters
  • Natural gas, propane or oil furnaces
  • Hot water boilers

In order to be considered qualified energy property, these products must meet the Consortium for Energy Efficiency (CEE) highest efficiency tier, not including any advanced tier, in effect at the beginning of the year when the property is placed in service. You can find out if your property is eligible before purchasing by searching for products on Energy Star.

Costs of certain electrical components needed to support the residential energy property, including panelboards, sub-panelboards, branch circuits, and feeders, also qualify for the credit if they meet the National Electric Code and have a capacity of 200 amps or more.

Oil furnaces or hot water boilers can also qualify through other efficiency criteria.

Heat pumps and biomass stoves and boilers with a thermal efficiency rating of at least 75% qualify for a credit.

Qualified improvements include new:

  • Electric or natural gas heat pumps
  • Electric or natural gas heat pump water heaters
  • Biomass stoves and boilers

Costs may include labor for installation.

Step 2: Buy and install the energy property

Purchase, install and use your qualified energy property.

Step 3: Get documentation

While documentation is not required to be filed with your tax return, it may be required if your tax return is audited. The IRS strongly recommends you retain your purchase receipts and installation records as well as any Energy Star and/or National Fenestration Rating Council labels. These documents will also be needed to substantiate your adjusted basis if the property is eventually sold.

Step 4: File Form 5695 with your tax return

You will need to file Form 5695, Residential Energy Credits when you file your tax return for year in which your qualified energy property was originally placed in service.