Answers to commonly asked solar questions
How do I claim the ITC?
After consulting with a licensed tax professional to verify you are eligible for the ITC, you will need to complete and attach IRS Form 5696 to your federal tax return. Instructions for filling out the IRS form are available here.
How do I claim the Hawaii Energy Income Tax Credit?
After consulting with a licensed tax professional to verify you are eligible for the Hawaii State Tax Credit, you will need to complete and attach the State of Hawaii – Dept. of Taxation Form N-342 to your State tax return. Instructions for filling out the Hawaii DOT form are available HERE.
What if the ITC exceeds the amount I owe the IRS in taxes?
The ITC is considered a ‘nonrefundable credit,’ so you will not get a refund for the balance. However, you can carry over the balance of any unused amount of the tax credit into the following tax year until it is exhausted.
What if it exceeds the amount I owe the State in taxes?
The Hawaii Energy Credit is considered a ‘nonrefundable credit,’ so you will not get a refund for the balance. However, you can carry over the balance of any unused amount of the tax credit into the following tax year until it is exhausted.
Alternatively, you may elect to file with the ‘refundable’ option where the State will cut the system owner a check for the credit amount reduced by 30% (effectively 24.5%), regardless of their tax liability. This option offers some flexibility; however, the refundable credit is treated as taxable income by the IRS and will be subject to federal income taxes during the year in which it was received.
What if I buy a newly built home with solar on it already?
If a homeowner buys a newly constructed home and owns the system outright, the homeowner is eligible for the ITC in the year they moved into the house.
What if I lease a PV system or purchase electricity through a Power Purchase Agreement (PPA)?
If the system is leased or financed with a PPA, then the leasing company or PPA Provider claims the ITC, and the customer benefits by receiving a discounted cost of electricity.
What if I buy a home which already has PV on it, can I claim the tax credit?
No, the tax credits for solar can only be claimed one time, and it is based on the year that the original equipment was placed in service.
Is there a maximum amount you can claim on the Federal ITC?
No, there is no cap on the amount that can be claimed for the ITC.
What if I do not owe any taxes or have any federal tax liability?
The ITC is a credit against your tax liability, so it requires you to have a balance owed to the IRS for that tax year.
- In the event you are retired and do not have any tax liability, we recommend financing your system through a Lease or PPA (Visit our Financing Page.)
- If you are claiming a loss for this tax year due to write-offs from other sources, you could install the system and carry the balance of the ITC forward to claim in a future tax year where you do owe taxes to the IRS.
So, the solar tax credit is like a ‘write-off’?
No, the ITC is a nonrefundable credit, not a deduction, making it much more valuable. The credit directly reduces the amount of tax you owe, providing a dollar-for-dollar reduction of your tax liability. So, if the tax credit you are eligible was equal to $10,000; this would lower the amount of taxes owed by the corresponding $10,000.
A ‘write-off’ or deduction on the other hand, reduces how much of your income is subject to taxes. Deductions can lower your taxable income by the percentage of your highest federal income tax bracket. So, if you fall into the 24% tax bracket and receive a $10,000 deduction, this will save you $2,400 on your taxes.
Commercial energy systems are eligible for additional business tax deductions (accelerated depreciation). Visit our Commercial Solar Page for more information on solar tax incentives for commercial businesses.
Is the Hawaii Energy Income Tax Credit going to expire?
Currently there is no expiration date set for the Hawaii Energy Credit. It is an important element to incentive system owners to ‘go solar’ and move toward the State’s goal of 100% renewable energy by 2045.