If you're taking it daily then the "morning after" effect should pass after a few weeks. If that doesn't happen, you might find that the XR version works better for you. You might even need a lower dose as the sedative effect comes from it acting as an antihistamine at low doses.
The effect that you should be getting is being able to fall asleep when you're tired not getting knocked out regardless of when you take it.
If your insomnia is an ongoing problem then it would be worthwhile getting a sleep study done to see exactly what's happening.