2023 Residential Clean Energy Credit
For 2023, the Residential Clean Energy Credit is 30% (Credit rate) and $500 (Fuel cell credit limit, per half kilowatt).
Effective 2023-01-01Source: 2023 Instructions for Form 5695 (IRS)Verified 2026-08-29
Compared with 2022
Every figure on this page is unchanged from 2022.
| Item | 2022 | 2023 | Change |
|---|---|---|---|
| Credit rate | 30% | 30% | +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 U.S. home in 2023 and are filing Form 5695.
What changed this year, and why
This is a new article describing the 2023 Residential Clean Energy Credit.
Common questions
- What types of property qualify for the Residential Clean Energy Credit?
- You may be able to claim the credit for qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, battery storage technology, and fuel cell property installed at your home in the United States. Labor costs for onsite preparation, assembly, or original installation are also included.
- Does the home have to be my main home to claim the credit?
- Yes. The home does not have to be your main home, but it must be located in the United States.
What happens when the credit is bigger than your tax
When your Residential Clean Energy Credit for 2023 is larger than the tax you owe, you cannot use the full amount in that year. The credit is limited by your tax liability, shown on line 14 of Form 5695. If that limit is less than the total credit you calculated on line 13, the difference is an unused credit. You do not lose it. Instead, you can carry the unused portion forward to 2024, where it can offset your tax liability in that future year. You must still file Form 5695 for 2023 even if you cannot use any of the credit at all in 2023. The carryforward continues to apply until you have used the full credit amount or the credit expires under the law. The credit rate for 2023 is 30%, so qualifying expenses can generate a substantial credit that may exceed your tax in a single year, making the carryforward rule important for taxpayers who install expensive systems like solar panels.
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 2024.
2023 Instructions for Form 5695 (IRS)
Business use of the property can cut the credit
The residential clean energy credit and the energy efficient home improvement credit both apply only to property used primarily for personal, nonbusiness purposes. The IRS draws the line at 80%: if less than 80% of an item's use is for nonbusiness (personal) purposes, you may still claim a credit, but only on the portion of the costs allocable to that nonbusiness use. If the item is used 80% or more for business, none of its costs count toward either credit. In practice, when the nonbusiness-use threshold is met, you must allocate the expense between the business and personal portions and figure the credit only on the personal share. This allocation rule prevents a taxpayer from claiming a full residential credit on property that is predominantly used in a trade or business, where different, often more generous, business energy credits may apply instead. Both the residential clean energy credit at a rate of 30% and the energy efficient home improvement credit are subject to this same 80% test.
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.
2023 Instructions for Form 5695 (IRS)
A cost counts when installation is finished, not when you paid
For both the residential clean energy credit and the energy efficient home improvement credit, the IRS does not look at when you wrote a check or paid a deposit. Instead, a cost is treated as "paid" - and therefore counted toward the credit for a particular tax year - only when the underlying work is finished. For property added to an existing home, the triggering event is the completion of the original installation of the item. For a home being reconstructed, costs are treated as paid when your original use of the reconstructed home begins. A special rule applies only to the residential clean energy credit: costs connected with the construction of an entirely new home are treated as paid when your original use of the constructed home begins. The practical effect is that paying a contractor in 2023 does not let you claim the credit for 2023 if the installation is not complete until 2024. You must wait until the project is finished and, where relevant, until you begin using the home before the cost counts.
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.
2023 Instructions for Form 5695 (IRS)
Utility rebates come off the cost first
A public utility subsidy received for the purchase or installation of an energy conservation product reduces the eligible cost you can use to figure your credit, provided the subsidy was not included in your gross income. You must subtract the full amount of that subsidy from the product's cost before calculating the credit. This prevents a double benefit: you cannot exclude the subsidy from income and also claim a credit on the full, unreduced cost. The rule also applies when a third party, such as the installing contractor, receives the subsidy on your behalf. Even though the money never passes through your hands, it is still treated as having reduced your out-of-pocket cost, and you must reduce your basis in the property by the subsidy amount before computing the credit. The same principle applies to any similar rebate or incentive that is excludable from income, ensuring that the credit reflects only the net economic burden borne by the taxpayer.
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.
2023 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 - the home where you live most of the time - and that home must be located in the United States. Unlike solar electric or solar water heating property, which may qualify when installed on a second home or vacation property, fuel cell property does not receive the credit unless it is at your main home. A second residence, rental property, or home located outside the United States does not qualify for the fuel cell credit. The fuel cell property itself must be an integrated system that converts fuel into electricity using an electrochemical process, with a nameplate capacity of at least one-half kilowatt and an electricity-only generation efficiency greater than 30%. Even when those technical thresholds are met, the location requirement remains: the property must serve your main home within the United States for any costs to count toward the 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.
2023 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.
2023 Instructions for Form 5695 (IRS)
- Credit rate
The credit rate for property placed in service in 2022 through 2032 is 30%.
- 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.