Here is my summary for Solar tax credit
Solar system installation has to be place in service in 2022 if you want credit in 2022
Federal tax credit is 30% of the cost of installing solar panels, which reduce your tax liability. If you cannot use fully, it can be carried over to 2023 to offset your tax.
State of Hawaii tax credit is ３５％ up to $5000 credit
The solar system must be installed at your primary or secondary residence. It means that you can get tax credit as long as you own the solar system even though you did not own that property.
Please see the detail below
The federal solar tax credit at a glance:
Solar systems installed before 2033 are eligible for a tax credit equal to 30% of the costs of installing solar panels.
A $20,000 solar system would receive a tax credit of $6,000 to what you owe in federal income taxes.
Solar systems installed in 2033 will receive a 26% tax credit, while systems installed in 2034 will get a 22% tax credit before the tax credit expires completely in 2035.
To qualify for the tax credit, you must own the solar panels, have a taxable income, and it must be installed at your primary or secondary residence.
Battery storage systems can also receive the 30% federal tax credit when charged exclusively with solar. Starting in 2023, standalone battery installations will also qualify for the credit.
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How does the solar tax credit work?
How to qualify for the 30% federal solar tax credit
What costs qualify for the federal solar tax credit?
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How the federal solar tax credit works
Before we get into the solar tax credit specifically, let’s go over the basics of how a tax credit works. If you owe $3,000 in federal taxes but are eligible for a tax credit of $1,000, your tax liability drops to $2,000. Pretty straightforward.
The solar tax credit works just like this. The value of the tax credit you earn is based on a percentage of “qualifying costs” of installing solar panels. For 2022, the solar tax credit is worth 30% of the installation costs. So, if your solar installation cost $20,000, you would be eligible for an income tax credit of $6,000.
Solar systems installed in 2033 will receive a tax credit equal to 26% of installation costs. In 2034, the tax credit will be worth 22%. In 2035, the federal solar tax credit will expire altogether.
This means a $20,000 solar system installed in 2022 would receive a credit amount of $6,000, while a system installed for the same price in 2033 would only receive $5,200.
File away! To get the federal tax credit, you need to fill out IRS Form 5695. The process is pretty straightforward, but we’ve created a step-by-step guide to help you file for the tax credit and answer all of the questions you might have about the process.
What if I owe less than my tax credit value?
The solar tax credit is non-refundable, meaning if your solar tax credit is worth more than what you owe in taxes, you’re not going to get any sort of check or refund for it. But, that doesn’t mean you won’t get the full value of it. Any leftover value will carry over and be applied to your taxes the next year.
So, let’s say you install solar panels and get a $6,000 tax credit, but you only owe $4,000 in federal income taxes. That leaves you with $2,000 of your tax credit that will be applied to next year's taxes. The tax credit can be carried forward for a maximum of 5 years.
What if I’m getting a tax refund?
There’s also the scenario that you had your taxes withheld from your paycheck, which means you already paid your taxes. In some cases, too much might have been taken out of your paycheck, and now the federal government owes you a refund.
If this is the case, the federal solar tax credit will be added to your tax refund check. But, only the amount up to what you owed. If you owed $8,000 in taxes, but $10,000 was withheld from your paychecks, you’d be getting a $2,000 tax refund from the government.
If in that same year, you installed solar and got a $9,000 tax credit, you would get an additional $8,000 on your refund check - for a total tax refund of $10,000. The remaining $1,000 from the tax credit would carry over to the next year.
How to qualify for the 30% federal solar tax credit
Like we said earlier, most Americans will qualify for the federal tax credit. But, there are some cases where you might not be eligible. The eligibility requirements are as follows:
The system must be installed between 2022 and 2032.
You must be the owner of the solar panel system.
You must have a taxable income.
The solar system must be installed at your primary or secondary residence.
It must be claimed on the original installation of the project.
Owning your solar system: If you go solar using a solar lease or a solar PPA, you cannot claim the federal solar tax credit because you are not the owner of the solar system. If you purchase solar using a solar loan, you can still take advantage of the tax credit because you are the owner of the system.
What costs qualify for the federal solar tax credit?
Most, if not all, of the costs associated with installing solar panels are eligible to be covered by the federal solar tax credit. Qualified costs include:
Equipment: The cost of the solar panels, racking, wiring, and inverters.
Contractor labor: The cost of labor associated with site preparation, installation, and planning, as well as the cost of any permitting fees and inspections.
Sales tax: Any sales tax associated with the above costs is also covered by the tax credit.
Technically, the tax credit isn't just for solar installations. Other clean energy systems can also get the tax credit, including solar water heaters, fuel cell systems, geothermal heat pumps, and even small wind energy systems!
Are battery storage systems eligible for the federal solar tax credit?
Yes, energy storage is covered by the 30% tax credit. Thanks to the passage of the Inflation Reduction Act, battery systems paired with solar panels in 2022 can get the full 30% credit.
On average, residential batteries cost between $10,000 and $15,000 to install, so you can expect to receive a tax credit between $3,000 and $4,500 for energy storage. If the battery is installed with solar panels, the battery costs will be bundled with the rest of your solar installation costs. If a standalone battery is installed without solar, you will get a tax credit based on the cost of the battery installation.
Starting in 2023, standalone batteries installed without solar will also be able to take advantage of the federal tax credit. Batteries installed after 2023 must also be at least three kilowatt-hours (kWh) in size. Most home storage batteries are around 10 kWh in size, so you likely won't have to worry about the minimum capacity requirement.
How does the solar tax credit work with state, local, and utility incentives?
The federal tax credit isn't the only incentive available to homeowners who switch to solar. You could be eligible for other incentives offered by your state government, or even your utility company. The type of incentive could potentially impact how much your federal solar tax credit will be worth.
In most cases, if you’re getting a rebate from your utility company, the value of the utility rebate will be subtracted from your total costs before the federal tax credit is calculated. This reduces the value of your tax credit.
Here’s an example: you install a solar system for $20,000 and you get a $1,000 rebate from your utility company. Instead of the tax credit being based on the initial $20,000 cost, it would instead be based on the price after subtracting the utility rebate. In this case, that’s $19,000.
You can use the following formula to calculate how much your tax credit will be worth after a utility incentive:
30% x (Total system cost - Utility rebate amount) = Federal tax credit value
Hawaii Solar Tax Credit
The State of Hawaii’s Renewable Portfolio Standard (RPS) contains a lofty goal of producing 100% of the state’s electricity via renewable energy sources by 2045. To meet that goal, Hawaii offers the Solar and Wind Energy Credit, which is one of the best statewide tax credits available in the entire nation.
This credit — also called the Renewable Energy Technologies Income Tax Credit — provides a tax credit in the amount of 35% of your entire solar system cost, which is even better than the federal solar tax credit. In Hawaii, where the average system costs $14,685, 35% of the total cost comes out to $5,139. The Solar and Wind Energy Credit is capped at $5,000 per 5-kW installation, so most homeowners get the maximum value of $5,000 from this credit.
The credit is normally applied to your income taxes, and if the credit is larger than the sum you owed for the tax year, the balance can be rolled over to the following year and beyond. Homeowners can also choose to take the credit in full via check as a refund, but this yields a lower percentage of the total system cost and isn’t as valuable to most homeowners.
Other Hawaii Solar Incentives
Hawaii provides some great incentives for most homeowners — including low-income families — that make going solar far more attainable. In particular, the state focuses on making solar financing accessible to all residential solar customers and business owners. The most appealing programs are listed below:
Green Energy Money Saver (GEMS) Program: The GEMS program is designed to make solar loans available to homeowners who would otherwise be unable to attain financing. The loans are low-interest and typically require little or no money down. The monthly cost to pay back the loan is built into the utility bills after the system is installed to have minimal impact on the homeowner. The GEMS Hawaii program is available to low-income residents.
GreenSun Hawaii: GreenSun Hawaii is another program designed to bring affordable and attainable solar loans to all homeowners, businesses, nonprofits and owners of multi-family homes. The low interest rates and no-money-down options afforded by GreenSun Hawaii make solar more accessible than ever before.
Hawaii Solar Sales and Property Tax Exemption
Many states waive sales tax on solar equipment in an effort to lower the barrier to entry to clean energy production. Unfortunately, Hawaii does not have a sales tax exemption, so all homeowners will have to pay sales tax on their systems. While the State of Hawaii as a whole doesn’t offer a property tax exemption for solar, the City of Honolulu does. Home improvements naturally increase the value of your home, which means your tax assessed value will increase and bump up your property taxes. Installing solar panels boosts home value quite significantly in most cases — as long as you buy or finance them — so property taxes will also increase. However, this is not the case in Honolulu, as the property tax exemption prevents taxes from increasing due to solar panel installation.
Net Metering in Hawaii
Net metering is a policy that makes it easier for homeowners to eliminate their electric bills. Through interconnection via an inverter, electricity can travel between your solar photovoltaic (PV) system and the local electric grid. When your panels don’t produce enough energy to cover what you’re using, the grid provides the difference, and you’re billed for the energy. When your panels overproduce, you send electricity to the grid, and your bill gets credited.
Unfortunately, net metering is no longer available in Hawaii. However, the Hawaii Public Utilities Commission has approved a new rooftop PV system program that lets Hawaii homeowners benefit from new energy storage technology.1 With solar batteries added to your solar energy system, you’re far more likely to be able to reduce your energy bills to $0 per month, effectively providing the same benefit as a positive net metering program but at a higher upfront cost.
In addition to the above state solar incentives, some Hawaiians will also have access to local incentives provided by their municipality or utility provider. Since the state doesn’t have a net metering program, in Hawaii, energy storage is a major factor when it comes to maximizing the benefit and return on investment of your solar power system. The Solar and Wind Credit is quite helpful, but most homeowners need more to cover costs. You can check the DSIRE database for local incentives like the Hawaiian Electric Battery Bonus.
The Hawaiian Electric Battery Bonus is a cash incentive for solar customers on Oahu to add a solar battery to their rooftop solar system. The battery incentive can be taken advantage of for new and existing solar arrays. The incentive varies depending on your battery’s output during peak electricity usage times, and it can total up to $850 per kilowatt-hour produced. A standard 5.5-kilowatt system could get more than a $4,500 cash incentive.
Hawaii Energy Co (HECO) also offers rebates for solar hot water installation, which some solar panel installation companies can include in their estimates as an energy-efficiency upgrade. You can check availability and the amount of the rebate for your water heater on HECO’s site