Solar Tax Credits For Photovoltaic & Solar Hot water systems

While the solar tax credit has made solar significantly more affordable for homeowners, the Federal Tax Credit will begin to decrease in 2020. Below we lay out what the State and Federal Tax credits are for photovoltaic (PV) systems.

• What is the solar tax credit?

• How to Claim Your Credit

• Upcoming Changes

What is the Residential Hawaii Energy Tax Credit for PV?

Originally enacted in 1976, the Hawaii Energy Tax Credit allows individuals to claim an income tax credit of as much as 35% of the cost of equipment and installation of a residential photovoltaic (PV) system. The credit is capped at $5,000 per “5 kW system,” and multiple systems may be installed on one home.

Systems must be fully installed and capable of operation by the end of the the year in which you are claiming the tax credit. If your credit is more than what you owe in that year, the credits may be rolled forward to subsequent years. Hawaii also offers a “refundable credit” for PV system owners who do not have sufficient state tax liability; the refundable credit is 30% less than the normal tax credit, but state cuts a check directly to the system owner.

What is the Residential Federal Solar Tax Credit for PV?

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The federal solar tax credit, formally known as the investment tax credit (ITC), is a credit equal to 30% of the qualified costs of installing a photovoltaic (PV) solar system. The ITC was established as a part of the Energy Policy Act of 2005 in an effort to boost the US renewable energy market.

How Does it Work?

The total value of the solar tax credit can easily be calculated by taking 30% of the solar system cost. There is no limit to the value of the credit. 

It’s important to note that the federal solar tax credit is a nonrefundable tax credit. This means that you only get a refund up to the amount you owe in federal taxes.

The solar tax credit is only available for the owner of the system. Therefore, homeowners who install a PV system under a PPA (Power Purchase Agreement) or Solar Lease are not personally eligible for the ITC.

 

How Do I Claim the Residential Credit?

You may claim the state or federal tax credits for a residential solar panel system by consulting with your CPA or licensed tax advisor regarding the proper way to fill out the forms designated by the State of Hawaii and the IRS for their respective credits. The specific amount of tax credits you are able to claim in a given tax year may vary depending on your individual circumstances.

Important Note: We are not tax professionals and are not authorized to provide tax advice to individuals. For formal advice regarding the solar tax credit, consult with a tax professional. The information provided above is from generally applicable, public sources.

Upcoming Changes to the Solar Tax Credit

Per Notice 2018-59, the IRS gave guidance on the Consolidated Appropriations Act, 2016 which lays out the following schedule for the ITC:

Solar Tax Credit Schedule

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Tax Credits for Solar Hot Water Systems

Hawaii energy tax credit

Originally enacted in 1976, the Hawaii Energy Tax Credit allows individuals to claim an income tax of 35% of the cost of equipment and installation of a residential solar thermal system. The credit is capped at $2,500.

Federal Solar Tax Credit

The federal solar tax credit, formally known as the investment tax credit (ITC), is a credit equal to 30% of the qualified costs of installing a solar hot water system. The ITC was established as a part of the Energy Policy Act of 2005 in an effort to boost the US renewable energy market. There is no cap for solar hot water systems.