Hawaii is an ideal location for harnessing solar energy due to its abundant sunshine. The state’s commitment to renewable energy is evident through various incentives, with the Hawaii Solar Tax Credit standing out as a significant financial boost for home and rental property owners. In this blog, we will learn if Hawaii solar tax credit is refundable and break down the rules of the available incentives.
Is Hawaii Solar Tax Credit Refundable?
No, the Hawaii solar tax credit is non-refundable. A non-refundable tax credit means it cannot be refunded beyond your tax liability. On the other hand, a refundable tax credit means that you can get a refund of the credit even if you don’t owe any taxes or if your tax liability is less than the amount of the credit.
To qualify for a refundable solar tax credit, you must meet the following requirements:
- You must install a solar system with a total output capacity of at least 5 kW for photovoltaic (PV) systems or at least 0.5 kW for wind energy systems.
- You must allocate the cost of your solar system among all the owners or users of the property where it is installed.
- You must obtain a certification from a licensed architect or engineer that your solar system meets certain energy conservation standards.
Moreover, the benefits of claiming a refundable solar tax credit are obvious: you can get more money back from your solar investment and reduce your payback period.
How Does Hawaii Solar Tax Credit Work?
The Hawaii solar tax credit is a state incentive that allows homeowners and businesses to reduce their income tax liability by a percentage of the cost of installing a solar energy system. It is also known as the Renewable Energy Technologies Income Tax Credit (RETITC) and can be used in combination with the federal solar tax credit.
The amount of credit depends on the type and cost of the solar system, as well as the taxpayer’s income tax liability. The credit rate is 35% for solar thermal systems and 25% for PV systems. The approximate credit cap is $2,250 per system for single-family residential property, $350 per unit for multi-family residential property, and $500,000 per system for commercial property.
If the credit exceeds the taxpayer’s income tax liability for the year, the excess amount can be carried forward to the subsequent year.
Also See: Decoding NT Solar Rebates: Your Guide to Solar Power in Northern Territory
How to Fill Hawaii Solar Tax Credit Form?
To claim the Hawaii solar tax credit, you need to fill out and submit the Hawaii Solar Tax Credit Forms along with your state income tax return. The forms are available on the Hawaii Department of Taxation website.
Here are the steps to follow:
1. Download Form N-342, which is the main form for the solar tax credit. You need to fill out this form for each tax year that you claim the credit.
2. Fill out Part I of Form N-342 with your personal information, such as your name, social security number, address, and filing status.
3. Fill out Part II of Form N-342 with the information about your solar system, such as the type, size, cost, installation date, and location. You also need to enter the credit rate and cap applicable to your system.
4. Calculate the credit amount in Part III of Form N-342 by multiplying the system cost by the credit rate and applying the credit cap. The result is the maximum amount of credit you can claim for that system.
5. Fill out Part IV of Form N-342 with the information about your income tax liability, such as your taxable income, tax due, and payments made. You also need to enter the amount of credit you are claiming for that system.
6. If you have more than one solar system installed on a single property in a tax year, you need to fill out Hawaii solar tax credit Form N-342A for each system. You need to attach Form N-342A to Form N-342.
7. If you transfer or allocate the credit to another party, such as a tenant or a contractor, you need to fill out Form N-342C for each transfer or allocation. You need to attach Form N-342C to Form N-342.
8. Submit Form N-342 and any attached forms with your state income tax return. You also need to keep copies of your receipts, invoices, contracts, and compliance certificates for your records.
Filling out and submitting these forms can be confusing and time-consuming. Therefore, it is advisable to consult with a tax professional and a solar installer before claiming the Hawaii solar tax credit.
Also Read: How to Apply for Solar Rebate in NSW
Hawaii Solar Tax Rebate Plans and Incentives 2023
Many people confuse the terms solar tax rebate and solar tax credit, but they are not the same thing. A solar tax rebate is a direct payment or discount that you receive after you pay your taxes, while a solar tax credit is a reduction in the amount of taxes that you owe. The credit is not refundable and the rate is around 35% for solar thermal systems and 25% for photovoltaic systems.
Hawaii Solar Incentives
Hawaii offers some of the most generous solar incentives in the country, which can significantly lower the cost of your solar system and increase your return on investment. Here are some of the main Hawaii solar incentives that are available:
1. Federal Tax Credit
The federal tax credit is a nationwide incentive that applies to all states, including Hawaii. It allows you to deduct 30% of the cost of your solar system from your federal income taxes if it was installed on or before December 31st, 2019. The federal tax credit is available only until 2035 unless Congress renews it. It will gradually decrease to 26% in 2033 and 22% in 2034. Moreover, this tax credit is not refundable, which means you can only use it to offset your tax liability.
Also, take a look at the Solar Incentives and Rebates in Canada.
2. State Tax Credit
The state tax credit is a Hawaii-specific incentive that allows you to deduct up to 35% of the cost of your solar system from your state income taxes. However, unlike the federal tax credit, the state tax credit has a cap on the maximum amount that you can claim per system. The cap depends on the type and size of your solar system, as shown in the table below:
| Type of System | Cap Per System |
| Photovoltaic (PV) | $5,000 |
| Solar Water Heating | $2,250 |
| Wind Energy | $1,500 |
| Hybrid System | $5,000 |
Net metering is a billing mechanism that allows you to sell any excess electricity that your solar system produces back to the grid at retail rates.
Net metering is beneficial because it reduces your electricity bill and allows you to make money from your solar system. However, net metering is currently only available for customers of Hawaiian Electric Company (HECO), Maui Electric Company (MECO), and Hawaii Electric Light Company (HELCO).
If you are not eligible for net metering or it becomes unavailable in the future, you can still participate in other programs that allow you to sell or store your excess electricity from your solar system. These programs include:
- Customer Grid-Supply (CGS): This program allows you to sell your excess electricity to the grid at a fixed rate that is lower than the retail rate.
- Customer Self-Supply (CSS): This program allows you to store your excess electricity in a battery or use it for other purposes, such as charging an electric vehicle or powering a water pump. You cannot sell your excess electricity to the grid under this program.
- Smart Export: This program allows you to sell your excess electricity to the grid at a variable rate that depends on the time of day and the demand for electricity.
You can also check out the Texas Solar Incentives.
Rules for Hawaii Solar Tax Credit for Rental Property
Hawaii Solar Tax Credit for Rental Property has some special rules and limitations that you need to follow.
1. If you are the one who owns and pays for the system, you can claim the credit unless you share it with someone else.
2. If you rent out your property for more than 14 days in a year and report your rental income and expenses on Schedule E of Form 1040 or Form N-11, your property is considered commercial. If you rent out your property for 14 days or less in a year and report your rental income as other income on Form 1040 or Form N-11, your property is considered residential.
3. Apply the right credit rate and cap based on the type and cost of your system and the type of your property.
4. File Form N-342 with your state income tax return and attach Form N-342A for each system installed. If you have more than one system on a single property in a tax year, you need to fill out Form N-342B to share the cost and output capacity of each system. If you give or share the credit with someone else, you need to fill out Form N-342C to report the details of the gift or share.
5. Homeowners and renters can receive federal tax credits for certain expenses, such as energy-efficient appliance purchases. Eligible products include solar panels, battery storage systems with a capacity greater than 3 kWh, solar water heating products, and other energy efficiency upgrades.
Now you know if the Hawaii solar tax credit is refundable or not. However, we recommend that you consult with a tax professional and a solar installer before installing a solar system on your property. We hope this article has been helpful and informative. If you have any questions or feedback, please leave a comment below. Thank you for reading!
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