How to Calculate Hawaii Solar Tax Credit for Your Installation

Hawaii offers a state tax credit to encourage residents and businesses to install solar energy systems, helping offset upfront costs. This incentive makes solar more affordable in a state with some of the highest electricity rates in the U.S. Understanding how to calculate your potential savings is key to maximizing this benefit.

To determine your Hawaii Solar Tax Credit, you’ll need to consider installation costs, the applicable credit rate, and whether you qualify for a refundable or nonrefundable credit. Proper documentation is necessary to claim the credit.

Types of Systems That Qualify

Hawaii’s solar tax credit applies to photovoltaic (PV) systems, solar water heating systems, and certain battery storage systems. PV systems, which generate electricity from sunlight, must be installed on residential or commercial properties. These systems can be grid-tied, connecting to the utility grid, or off-grid, operating independently with battery storage. Grid-tied systems may offer net metering, allowing homeowners to earn credits for excess electricity sent back to the grid.

Solar water heating systems qualify if they meet efficiency standards set by the Hawaii State Energy Office. These systems use solar collectors to heat water, reducing reliance on electric or gas water heaters. To be eligible, the system must replace or supplement an existing water heating method and be certified by the Solar Rating & Certification Corporation (SRCC) or an equivalent organization.

Battery storage systems may qualify if installed with a new solar energy system or as an upgrade to an existing one. The battery must be charged primarily by solar energy. This is particularly beneficial for homeowners looking to maintain power during outages.

Calculating Installation Costs

The total cost of a solar energy system in Hawaii includes more than just the price of the panels. Labor, permitting fees, and additional equipment such as inverters and mounting hardware all contribute to the final expense. Costs vary based on roof complexity, system size, and contractor pricing. Homeowners should obtain multiple quotes from licensed solar installers.

Soft costs, including permitting and inspection fees, can add hundreds to thousands of dollars, depending on the county and project scope. Utility interconnection costs, which include application fees and equipment upgrades, should also be factored in.

Financing methods affect the overall cost. Cash purchases typically result in the lowest expenditure, while loans introduce interest charges. Power purchase agreements (PPAs) and leases allow homeowners to install solar with little to no upfront payment but do not qualify for the tax credit since the homeowner does not own the system.

Applying the Credit Rate

Hawaii’s Renewable Energy Technologies Income Tax Credit (RETITC) covers 35% of qualified solar installation costs, subject to maximum limits. Residential installations are capped at $5,000 per system, while commercial projects have a ceiling of $500,000 per system.

Only expenses directly related to the installation and function of the solar system—such as panels, inverters, mounting equipment, and labor—qualify for the credit. Costs unrelated to the system, such as roof repairs or general home improvements, do not count. Itemized invoices and contracts help ensure accurate claims.

For properties with multiple systems, Hawaii allows taxpayers to claim the credit separately for each qualifying installation. A homeowner installing both a photovoltaic system and a solar water heating system can claim separate credits, up to the respective limits. Multi-unit dwellings may also qualify for multiple credits if each unit’s system meets the state’s definition of a separate installation.

Refundable vs Nonrefundable Credit

Hawaii offers the RETITC as either a refundable or nonrefundable credit. A nonrefundable credit can only offset tax liability up to the amount owed. If the credit exceeds the total tax due, the unused portion can be carried forward for up to five years under Hawaii Revised Statutes 235-12.5. This option benefits individuals and businesses with sufficient tax liability to absorb the credit over multiple years.

The refundable credit allows taxpayers to receive the full credit amount as a refund, even if it exceeds their tax liability. However, this option is only available for individuals, not corporations, and comes with a reduced credit rate of 30% instead of 35%. For example, if a taxpayer owes $1,000 in state tax but qualifies for a $5,000 refundable credit, they would receive a $4,000 refund from the state.

Documentation Requirements

Proper documentation is required to claim the Hawaii Solar Tax Credit. Invoices and receipts from the solar installer must outline the total cost, itemized expenses, and payment details. These documents should specify the type of system installed and confirm that it meets state eligibility criteria. If the system includes battery storage, documentation must indicate that it is primarily charged by solar energy.

Taxpayers must submit Form N-342 when claiming the credit. Those opting for the refundable credit may need to provide additional forms, such as Form N-342A, to certify eligibility. If the system was financed through a loan, proof of payment or loan agreements may also be required. Keeping these records organized ensures a smooth filing process and reduces the risk of audit complications.