2021 Residential Clean Energy Credit
For 2021, the Residential Clean Energy Credit is 26% (Credit rate) and $500 (Fuel cell credit limit, per half kilowatt).
Effective 2021-01-01Source: 2021 Instructions for Form 5695 (IRS)Verified 2026-08-29
Compared with 2020
Every figure on this page is unchanged from 2020.
| Item | 2020 | 2021 | Change |
|---|---|---|---|
| Credit rate | 26% | 26% | +0% (+0.0%) |
| Fuel cell credit limit, per half kilowatt | $500 | $500 | +$0 (+0.0%) |
Who it applies to
Taxpayers who made qualifying energy saving improvements to their home in the United States in 2021
What changed this year, and why
For 2021, the residential energy efficient property credit rate is 26 percent. The credit applies to qualified solar electric, solar water heating, small wind energy, geothermal heat pump, fuel cell, and biomass fuel property placed in service during 2021. For qualified fuel cell property, the credit is limited to $500 for each one-half kilowatt of capacity.
Common questions
- What types of property qualify for the Residential Clean Energy Credit?
- The credit covers qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, fuel cell property, and biomass fuel property installed on a home in the United States.
- Does the fuel cell property have to be on my main home?
- It must be installed on or in your main home. The other qualifying property types (solar, wind, geothermal, and biomass) may be installed on a second home.
What happens when the credit is bigger than your tax
When you claim the Residential Clean Energy Credit on your 2021 return, the credit you can actually use is limited by your tax liability for the year. The IRS worksheet compares the credit amount you calculated against your tax liability. If the credit is larger than what your tax liability allows, the leftover amount does not expire. Instead, you can carry the unused portion of the credit forward to 2022, where it can offset your tax liability in that year. You are still required to file the form for 2021 even if you cannot use any of your credit in that year. The carryforward ensures that eligible taxpayers eventually benefit from the full credit amount over more than one tax year, rather than losing the excess.
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 2022.
2021 Instructions for Form 5695 (IRS)
Business use of the property can cut the credit
The Residential Clean Energy Credit is designed for property used at your residence. When an item serves both business and personal purposes, the IRS requires you to determine what share of its use is nonbusiness. Only the nonbusiness portion of the cost qualifies for the credit. If 80% or more of the item's use is nonbusiness, the entire cost can be used to figure the credit. However, if less than 80% of the use is nonbusiness, you must allocate the costs and can claim the credit only on the portion attributable to the nonbusiness use. This 80% threshold applies to both the residential energy efficient property credit and the nonbusiness energy property credit.
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.
2021 Instructions for Form 5695 (IRS)
A cost counts when installation is finished, not when you paid
For the Residential Clean Energy Credit, a cost is not considered paid when you write a check or pay a contractor. Instead, the IRS treats the cost as paid when the original installation of the item is completed. If the costs are connected with the reconstruction of your home, the cost is treated as paid when your original use of the reconstructed home begins. This timing rule determines which tax year the credit belongs to. You cannot claim the credit in a year before the installation or reconstruction is finished and you begin using the home, even if you paid the contractor earlier.
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.
2021 Instructions for Form 5695 (IRS)
Utility rebates come off the cost first
If you receive a subsidy from a public utility to help pay for the purchase or installation of an energy conservation product, that subsidy reduces the amount you can claim for the credit. Specifically, if the subsidy was not included in your gross income, you must subtract it from the cost of the product before you calculate your credit. This rule prevents you from receiving a tax credit on money you did not actually pay. The rule applies even if a third party, such as your contractor, receives the subsidy on your behalf. You must reduce your eligible cost by the full amount of the tax-free subsidy.
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.
2021 Instructions for Form 5695 (IRS)
Fuel cells must be at your main home; solar need not be
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. This means the fuel cell must be at the home where you live most of the time. Unlike solar, wind, or geothermal property, which can be installed at a second home or vacation property and still qualify, fuel cell property is restricted to your main home only. A temporary absence due to illness, education, business, military service, or vacation does not change which home is your main home. If you install a fuel cell at a second home, those costs do not qualify for the Residential Clean Energy Credit.
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.
2021 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.
2021 Instructions for Form 5695 (IRS)
- Credit rate
Extends the 26 percent residential energy efficient property credit rate to property placed in service in 2021 and 2022.
- 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.