2020 Residential Clean Energy Credit
For 2020, the Residential Clean Energy Credit is 26% (Credit rate) and $500 (Fuel cell credit limit, per half kilowatt).
Effective 2020-01-01Source: 2020 Instructions for Form 5695 (IRS)Verified 2026-08-29
Compared with 2019
| Item | 2019 | 2020 | Change |
|---|---|---|---|
| Credit rate | 30% | 26% | -4% (-13.3%) |
| Fuel cell credit limit, per half kilowatt | $500 | $500 | +$0 (+0.0%) |
Who it applies to
Taxpayers who installed qualifying residential energy efficient property in a home in the United States in 2020
What changed this year, and why
For 2020, the residential energy efficient property credit is 26% of qualifying costs. The credit covers solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and fuel cell property installed in a home in the United States. Qualifying costs include labor for onsite preparation, assembly, and original installation, as well as piping or wiring to interconnect the property to the home. The credit for fuel cell property is capped at $500 per half kilowatt of capacity.
Common questions
- What property qualifies for the 2020 residential energy efficient property credit?
- The credit is 26% of the cost of qualified solar electric, solar water heating, small wind, geothermal heat pump, and fuel cell property installed in a home in the United States.
- Is there a cap on the credit for fuel cell property?
- The credit for qualified fuel cell property is limited to $500 for each one-half kilowatt of the property's capacity.
What happens when the credit is bigger than your tax
If the residential clean energy credit you calculate for 2020 is larger than the tax liability limit that applies to you, the portion you cannot use in 2020 does not expire. You are allowed to carry that unused amount forward to your 2020 return's next tax year, 2021. The rule applies specifically when the tax liability limit shown on line 14 of Form 5695 is less than the credit amount shown on line 13. Even if you cannot use any of the credit in 2020 because your tax liability is too low, you still must file Form 5695 with your return so the IRS records the credit and permits the carryforward. The carried amount then becomes part of your 2021 credit calculation, where it is again subject to that year's tax liability limit. In short, the credit is nonrefundable in any single year, but any excess is preserved for the following year rather than being lost.
If you can't use all of the credit because of the tax liability limit (that is, line 14 is less than line 13), you can carry the unused portion of the credit to 2021.
2020 Instructions for Form 5695 (IRS)
Business use of the property can cut the credit
When property is used partly for business and partly for personal purposes, the residential energy credits depend on how much of the use is nonbusiness. The IRS sets an 80% threshold: if less than 80% of the use of an item is for nonbusiness purposes, only that allocable portion of costs may be used to figure either credit. In other words, when business use exceeds a small share, you cannot claim the residential credit on the full cost. Instead, you may only include the share of costs that corresponds to the nonbusiness use percentage. Only the nonbusiness-use portion of the cost is eligible for the residential energy credit, even though the property itself may be a qualifying type such as solar panels or a geothermal heat pump. The business-use portion must be addressed through other provisions of the tax code, not through Form 5695.
If less than 80% of the use of an item is for nonbusiness purposes, only that portion of the costs that is allocable to the nonbusiness use can be used to determine either credit.
2020 Instructions for Form 5695 (IRS)
A cost counts when installation is finished, not when you paid
For both residential energy credits, the timing of when costs are considered paid matters for determining which tax year they qualify in. Costs are treated as being paid when the original installation of the item is completed, not when you actually paid the contractor or supplier. For reconstruction projects, costs count when your original use of the reconstructed home begins. For new construction, costs are treated as paid when your original use of the constructed home begins. This means if you paid a deposit in 2019 but installation wasn't finished until 2020, the costs count for 2020. This rule ensures the credit aligns with when the property is actually ready for use rather than when payment occurred.
For purposes of both credits, costs are treated as being paid when the original installation of the item is completed, or, in the case of costs connected with the reconstruction of your home, when your original use of the reconstructed home begins.
2020 Instructions for Form 5695 (IRS)
Utility rebates come off the cost first
When a public utility provides a subsidy for the purchase or installation of an energy conservation product, that subsidy can affect the amount of credit you claim. If the subsidy was not included in your gross income, you must reduce your cost for the product by the amount of that subsidy before figuring your credit. This prevents a taxpayer from receiving a credit on money that was effectively paid by someone else. The rule also applies if a third party, such as your contractor, receives the subsidy on your behalf. In practice, the qualified cost basis for the credit is the net amount you actually paid after subtracting any tax-free utility subsidy. If the subsidy was taxable and included in your income, this reduction does not apply, and you may use the full cost to figure the credit.
If you received a subsidy from a public utility for the purchase or installation of an energy conservation product and that subsidy wasn't included in your gross income, you must reduce your cost for the product by the amount of that subsidy before you figure your credit.
2020 Instructions for Form 5695 (IRS)
Fuel cells must be at your main home; solar need not be
Qualified fuel cell property must be installed on or in connection with your main home located in the United States. Unlike solar panels, small wind turbines, and geothermal heat pumps which can be installed on any home you own, fuel cells have this stricter location requirement. The fuel cell property must be an integrated system with a nameplate capacity of at least one-half kilowatt. This main home requirement means you cannot claim the fuel cell credit for property installed on a vacation home, rental property, or second residence, even if those properties are located in the United States.
Qualified fuel cell property costs are costs for qualified fuel cell property installed on or in connection with your main home located in the United States.
2020 Instructions for Form 5695 (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
2020 Instructions for Form 5695 (IRS)
- Credit rate
You may be able to take a credit of 26% of your costs of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and fuel cell property.
- Fuel cell credit limit, per half kilowatt
The credit amount for costs paid for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity of the property.