How To Calculate The Hawaii Solar Tax Credit

Installing solar panels in Hawaii can earn you nice tax credits and savings. But how much credit can you actually get? Read on as we break down everything you need to know to calculate your Hawaii solar tax credit.

If you’re short on time, here’s the quick answer: The Hawaii solar tax credit is 35% of your solar system costs, up to $2,250 per system for single-family homes. So if you install a $10,000 system, your maximum credit would be $2,250.

Determine If You Qualify for the Tax Credit

You must be a Hawaii resident and own/occupy the home

To qualify for Hawaii’s generous solar tax credit of up to $5,000, you must be a resident of the Aloha State and own and live in the home where the solar PV system is installed. Both homeowners and renters can claim the credit if they are responsible for payments on the system.

So gather up your utility bills and proof of home ownership or rental agreement to show you meet the residency and home occupancy requirements.

Your solar system must be new and installed in Hawaii

The solar equipment needs to be brand new, not used, and installed at your home located in Hawaii during the tax year you are claiming the credit for. So invoices showing the purchase and installation dates of the solar panels, inverters and other components will be needed.

Most homeowners choose to work with one of the reputable solar contractors located throughout the Hawaiian islands who will handle securing the required permits and provide the necessary paperwork.

There are no income limits to qualify

This exceptional solar incentive is unique because there are no income thresholds you have to meet like some other tax credits. All Hawaii residents are eligible to claim the full 35% credit, up to $5,000, regardless of their income level or tax bracket.

The only requirement is you have to owe at least $1,100 in state income tax to qualify for the full credit. But even if you owe less than that, you can still claim a reduced credit. With no income restrictions, going solar in Hawaii offers savings opportunities for households across all financial situations.

Calculate 35% of Your Solar Costs

Installing a solar system in Hawaii can earn homeowners a nice tax credit to help offset the initial costs. The state offers a 35% tax credit based on actual expenses spent to acquire and install the solar system. Calculating the credit amount is straightforward.

Add up all expenses directly related to the solar system

The key first step is tallying up all solar system expenditures that qualify for the credit. This includes:

• Solar panels
• Inverters
• Tracking equipment
• Mounting systems
• Wiring and electrical components
• Permits
• Labor and installation costs

Items like maintenance contracts and operational costs after system activation don’t count. Focus on hardware, construction, and activation expenses. Comb through your invoices and create a master list with all pertinent charges. An easy way is to use a spreadsheet to track and tally costs.

Multiply the total by 0.35 to get 35%

Once you have the grand total spent on solar system acquisition in hand, multiply this amount by 0.35 (35% as a decimal) using a basic calculator. The result is 35% of your total solar costs—this is the maximum amount you can claim for the Hawaii tax credit before the program caps are applied.

As an example, if a homeowner spends $15,000 on their new solar system installation, they would multiply $15,000 by 0.35 to get 0.35 x $15,000 = $5,250. This means they can claim a $5,250 solar tax credit before evaluating eligibility limits.

This is the amount of your tax credit before limits

In Hawaii, the actual solar tax credit amount that can be claimed each year has both per-system and per-taxpayer caps. As of 2023, the program limits are:

• Up to $2,250 per solar system OR 35% system costs, whichever is lower
• Up to $5,000 per taxpayer per tax year across all credits claimed

So in the $15,000 system example above with a preliminary 35% credit of $5,250—the program caps would reduce the claimable amount to $2,250 for that system, assuming the taxpayer has no other credits for the tax year. Hawaii also allows unused credits to be carried over year-to-year until exhausted.

The key is calculating 35% of your system costs as a starting yardstick, then checking eligibility limits to determine the actual tax credit amount available based on Hawaii’s generous solar incentives supporting renewable energy.

Check If You Exceed the $2,250 Limit

For single-family homes, the limit is $2,250

The Hawaii solar tax credit has a limit of $2,250 for systems installed on single-family homes. This means if your calculated credit amount exceeds $2,250, you will need to reduce it down to the $2,250 limit when claiming the credit on your tax return.

For example, if your system costs $15,000 and qualified for a 35% tax credit, your calculated credit would be $5,250 (15,000 x 0.35). Since this exceeds the $2,250 limit, you would only be able to claim $2,250 when filing your taxes.

For multi-family homes, the limit is $350 per unit

For solar systems installed on multi-family homes like apartments or condos, the limit is lower at $350 per unit. So if you install a system on a triplex with 3 units, the maximum total credit would be $1,050 ($350 x 3 units).

As with single-family homes, you’ll need to compare your calculated per unit credit to the $350 limit and reduce it if necessary when claiming the credit.

If your calculated credit exceeds the limit, reduce it to the limit

To recap, the key thing to remember is that Hawaii’s solar tax credit has the following limits:

• Single-family home: $2,250
• Multi-family home: $350 per unit

So even if your calculated credit is higher based on your system costs and the 35% rate, you can only claim up to the applicable limit amount. Be sure to compare your calculated credit against the limit for your property type and reduce it if it exceeds the limit.

Claiming credits above the limit could delay processing your tax return or even result in penalties or fees if not addressed. So double check your credit amount before filing to ensure you stay within the limits.

Claim the Credit When You File Taxes

File Form N-342 with your Hawaii tax return

To claim the Hawaii solar tax credit, you must include Form N-342 with your annual Hawaii state tax return. This form allows you to calculate and claim the credit. The key pieces of information needed on Form N-342 include:

• Date the solar system was installed and placed in service
• Total cost of the solar system
• Amount of any rebates, financial incentives, or other discounts applied to the cost of the system
• Breakdown of materials, labor, permitting fees, etc. that made up the final cost

Form N-342 must be filed within 4 years of installing the solar system in order to qualify for the credit. Keep copies of all invoices and financial paperwork related to purchasing and installing the solar system to support the information on the form.

Deduct the credit amount from your tax liability

Once you have calculated the credit amount using the percentages and limits described on Form N-342, you can deduct that credit amount directly from your overall Hawaii state tax liability for the year.

For example, if the solar tax credit you qualify for is $4,000 and your total Hawaii state tax bill for the year was $6,500, you would only owe $2,500 after deducting the $4,000 credit amount. The state of Hawaii experiences a huge amount of solar installation, over 70,000 rooftop systems as of 2022, which results in $400 million or more in solar tax credits deducted per year.

Carry any excess forward for up to 5 years

If your calculated solar tax credit exceeds your Hawaii state tax liability for the year you file Form N-342, you can roll that excess credit amount forward to apply over the next 5 tax years until the full credit value is used up.

This allows you to get the full benefit of the credit even if the deduction amount is larger than you owe in a particular tax year.

For example, if your credit one year was $6,000 but you only owed $3,500 in taxes, you could deduct the full $3,500 on that year’s return and then carry forward the extra $2,500 to deduct in parts over the next 5 years.

Just be sure to save copies of old tax returns to keep track of carryover amounts deducted.

Conclusion

Calculating Hawaii’s generous solar tax credit is straightforward once you know the key details. You can get back 35% of your costs, up to $2,250 for a single-family home system. Just be sure to claim the credit on Form N-342 when you file your Hawaii taxes within 5 years of installation.

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