Solar Tax Credits

 2020 Federal Income Tax Credit (ITC) = 26%

For Tax Year 2020, Homeowners who install a new photovoltaic (PV) system on their home will be eligible to receive a tax credit equal to 26% of the total installed cost of the system (including battery storage). The system must be fully installed and “operational” by 12/31/2020. 

Example:

Total System Cost = $50,000;

The ITC (Federal Income Tax Credit) =  $13,000 ($50,000 x 0.26 = $13,000).

Any amount the homeowner owes to the IRS for income taxes would be reduced by $13,000 for Tax Year 2020.

The Residential ITC is scheduled to step down next year and be eliminated altogether in 2022, making TODAY the best day to go solar!

 

 2020 Hawaii State Tax Credit = 35%

The Hawaii Energy Tax Credit allows owners of single-family homes to claim a State income tax credit up to 35% of the actual cost of the system or $5,000, whichever is less. 

Each ‘System’ is defined as 5 kilowatts (kW); therefore, a 10kW would be eligible for up to $10,000 in Hawaii State Tax Credits (see example calculation below).The system must be fully installed and “operational” by 12/31/2020 to claim for the 2020 tax year.

Example:

A 7.5 kW system costs $40,000, the first 5kW ‘system’ would receive a $5,000 state tax credit.  The remaining 2.5kW ‘system’ (1/3 of the total system size) would receive an additional 35% credit pro-rated ($40,000 x 33% x 35% = $4,620). 

The Hawaii Tax Credits on a 7.5kW system would be $5,000 + $4,620 = $9,620

Alternately, Homeowners also have the option to claim a “refundable credit” if they do not have sufficient Hawaii State Tax Liability to take advantage of the full 35% credit.  The refundable credit is reduced by 30%, making the effective rate 24.5%.  Therefore the $5,000 per 5kW cap becomes $3,500 per 5kW for homeowners who claim the refundable credit.  Hawaii State cuts a check directly to the system owner for the credit amount.

 

*Sunspear Energy are not licensed tax professionals, please consult with your CPA or licensed tax professional.  The information provided within is to serve as an illustrative guide and is from publicly available sources. 

 

Tax Incentive FAQ

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.