Form 5695 for 2026: Only the Solar Credit Carryforward Is Left

For most of the last two decades, Form 5695 was where homeowners turned a solar installation into a tax credit worth 30 percent of the bill. For tax year 2026 it has become something much smaller. The IRS draft, created April 1, 2026, is no longer called “Residential Energy Credits.” It is called “Carryforward of Residential Energy Credit,” and it has four lines. There is nothing on it for a new roof array, a heat pump or a battery installed this year, because the law that funded those credits ended them on December 31, 2025.

The short answer: you only need the 2026 Form 5695 if your 2025 Form 5695 ended with a number on line 16, the residential clean energy credit you earned but could not use because your tax bill was too small. Line 1 brings that carryforward in, line 2 caps it at what your 2026 tax can absorb, line 3 is the credit you take on Schedule 3, and line 4 carries any remainder to 2027. If you had no carryforward, there is no 2026 Form 5695 for you, whatever you installed this year.

What ended, and the date that actually matters

The One Big Beautiful Bill Act (P.L. 119-21) cut both home energy credits short. The draft 2026 instructions put it in two sentences under “What’s New”: “You can’t claim residential clean energy credits for expenditures made after December 31, 2025. You can’t claim energy efficient home improvement credits for expenditures or property placed in service after December 31, 2025.” The statute now reads the same way: section 25D(h) says the credit “shall not apply with respect to any expenditures made after December 31, 2025.”

The trap is in the word “made.” Section 25D(e)(8)(A) defines it: “an expenditure with respect to an item shall be treated as made when the original installation of the item is completed.” Paying the installer is not the test. A household that signed and paid for a solar system in November 2025, but whose installer finished the job in January 2026, made that expenditure in 2026, and the credit is gone. If you are in that position, the date on the installer’s completion paperwork matters more than the date on your receipt, and it is worth confirming before you assume a 2025 credit exists. The EV credits use the opposite test: a vehicle counts as acquired when the contract is signed and a payment made, so a car contracted for by September 30, 2025, and delivered in 2026 can still qualify; see Form 8936 for 2026.

Who still files Form 5695 for 2026

The residential clean energy credit (section 25D) has always been nonrefundable with a carryforward. It can reduce your tax to zero but not below, and section 25D(c) says that any excess “shall be carried to the succeeding taxable year and added to the credit allowable” for that year. Termination stopped new credits from being created; it did not erase credits already earned. The 2026 draft instructions spell out the narrow purpose that remains: “Use Form 5695 to take any residential clean energy credit carryforward from 2025 or to carry the unused portion of the residential clean energy credit to 2027.”

The people who need it are therefore easy to identify. They installed qualifying property, solar electric, solar water heating, small wind, geothermal heat pumps, fuel cells or battery storage, completed by the end of 2025 (or earlier), and the 30 percent credit came out larger than their federal income tax could absorb. A large solar installation on a household with a modest tax bill, or with other credits already using up the liability, is the classic case. Their 2025 Form 5695 shows the leftover on line 16, labeled “Credit carryforward to 2026.”

The energy efficient home improvement credit (section 25C), the one for insulation, windows, doors, heat pumps and home energy audits, never worked this way. It had annual caps and no carryforward, and the 2026 draft form has no line for it. Anything you could not use under that credit in 2025 is simply gone.

The four lines, one at a time

Line 1 is the carryforward: “Enter the amount, if any, from your 2025 Form 5695, line 16.” If you used tax software in 2025, this is the number it carried into its own records, but it is worth pulling up the actual 2025 form and checking it, because everything else on the page depends on it.

Line 2 is the limit based on tax liability, and it comes from a worksheet in the instructions, not from the form itself. The worksheet starts with your tax from Form 1040, line 18, and subtracts the other nonrefundable credits that take priority, if you claim them: the foreign tax credit, the child and dependent care credit, the education credits, the Saver’s Credit, the elderly or disabled credit, the child tax credit and credit for other dependents, the mortgage interest credit, the adoption credit, the clean vehicle credits, the District of Columbia first-time homebuyer carryforward and an amount on Schedule 3, line 6l. A footnote changes the child tax credit entry for many families: if the Schedule 8812 instructions direct you to complete their Credit Limit Worksheet B, which they do when you claim this credit, have a qualifying child under 17 and do not file Form 2555, you subtract that worksheet’s line 14 instead of the full credit from Form 1040, line 19. Whatever is left, if more than zero, goes on line 2. If the result is zero or less, you enter zero on lines 2 and 3.

Line 3 is the credit you actually take this year: “the smaller of line 1 or line 2.” That figure also goes on Schedule 3 (Form 1040), line 5a, which is how it reduces your tax.

Line 4 is what rolls on: “If line 3 is less than line 1, subtract line 3 from line 1.” That amount becomes line 1 of the 2027 form.

A worked example

Suppose a couple completed a $40,000 solar installation in 2025. At 30 percent, the credit was $12,000, but their 2025 tax after other credits was only $7,000, so their 2025 Form 5695 used $7,000 and showed $5,000 on line 16.

For 2026, line 1 is $5,000. On the worksheet, their Form 1040, line 18 shows $6,500 of tax, and they claim the child tax credit for one child, $2,200. Because they claim a Form 5695 credit with a qualifying child, the Schedule 8812 instructions send them to Credit Limit Worksheet B, and since their wages are well above the $13,834 needed to make the full $1,700 refundable, its line 14 comes to $500: the $2,200 credit minus that $1,700. The worksheet subtracts $500, not $2,200, which leaves $6,000 for line 2. Line 3 is the smaller of $5,000 and $6,000, so they take the full $5,000 residential clean energy credit on Schedule 3, line 5a, and line 4 is zero. Their nonrefundable child tax credit drops to $1,500, the other $700 comes back as the refundable additional child tax credit, and their 2026 federal income tax, before any other adjustments, falls to zero with nothing left to carry to 2027.

The order matters in that example. The worksheet does list the child tax credit ahead of the carryforward, but when Schedule 8812 sends you to Credit Limit Worksheet B, only the part of the child tax credit that cannot be paid out as the refundable additional child tax credit (up to $1,700 per child for 2026) stands in front of it; the rest gives way and comes back as a refund. A family whose earned income is too low to unlock that refundable portion subtracts most or all of the child tax credit first, and can find that the carryforward barely moves. That is not a mistake on the return; it is the stacking order written into the worksheets.

How long the carryforward lasts

The statute carries the excess to “the succeeding taxable year,” and the 2026 draft does exactly that, sending any remainder to 2027. Nothing in the 2026 form or instructions sets an end date for the carryforward, and the termination provision speaks only to “expenditures made after December 31, 2025,” not to credits already earned. The practical message is to keep filing the form each year until line 4 is zero, because the instructions are explicit: “File this form even if you can’t use any of your credit in 2026.”

What to keep in your file

Three documents carry this credit from year to year: the 2025 Form 5695 (for the line 16 figure), the installer’s records showing when the original installation was completed and what it cost, and each later year’s Form 5695. If the IRS ever asks how a 2026 or 2027 credit came about, the answer starts with the year the system was finished, not the year it was paid for.

For the rest of the 2026 return, the draft Form 1040 for 2026, line by line shows where Schedule 3 lands, and our Saver’s Match guide covers another credit that sits ahead of this one in the worksheet. The taxes hub collects the other 2026 drafts we have walked through.

Sources

• IRS, Form 5695 (2026), early release draft, “Carryforward of Residential Energy Credit”: https://www.irs.gov/pub/irs-dft/f5695—dft.pdf
• IRS, 2026 Instructions for Form 5695, early release draft (Aug 27, 2026): https://www.irs.gov/pub/irs-dft/i5695—dft.pdf
• IRS, Form 5695 (2025), Residential Energy Credits: https://www.irs.gov/pub/irs-pdf/f5695.pdf
• IRS, 2026 Instructions for Schedule 8812 (Form 1040), early release draft, Credit Limit Worksheets A and B: https://www.irs.gov/pub/irs-dft/i1040s8—dft.pdf
• IRS, Rev. Proc. 2025-32, section 4.05 (2026 child tax credit $2,200, refundable portion $1,700): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
• 26 U.S.C. § 25D (subsections (c), (e)(8) and (h)): https://www.law.cornell.edu/uscode/text/26/25D
• IRS, Energy credit FAQs (Fact Sheet 2025-05): https://www.irs.gov/EnergyCreditFAQs