26% Federal Tax Credit
The investment tax credit (ITC), also known as the federal solar tax credit, allows you to deduct 26 percent of the cost of installing a solar energy system from your federal taxes. Don’t wait! The federal ITC steps down to 22% in 2023 for businesses and homeowners. The residential market will drop to 0% while the commercial and utility markets will stay at a permanent 10% credit beginning in 2024.
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 2021.
The Residential ITC is scheduled to step down next year and be eliminated altogether in 2022, making TODAY the best day to go solar!
*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.
35% Hawaii State Tax Credit
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 12/31/2021 to claim for the 2021 tax year.
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.
Learn More About Incentives
*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.
Your Home Value Goes Up Up Up
Having a residential solar energy system on your home is a ‘capital improvement’ which adds to your property’s value. This means that you can potentially sell your home faster and for more than homes without solar. Your investment in efficient, clean solar power also adds to the tax basis of your home. When you sell the home, this tax basis investment can be deducted from the sales price, reducing the taxable profit on the sale. This may help you avoid capital gains taxes on appreciation.