The Hawaii renewable energy tax credit, set out in Hawaii Revised Statutes 235-12.5, lets you claim up to 35 percent of the cost of a qualifying solar energy system or up to 20 percent of a wind-powered system installed on property in Hawaii, subject to dollar caps that run from $1,500 for a residential wind system to $500,000 for a commercial solar or wind system.1Justia. Hawaii Code 235-12.5 – Renewable Energy Technologies; Income Tax Credit The credit has no expiration date, unused amounts carry forward, and some taxpayers can elect to receive it as a cash refund.
Who Can Claim the Credit
Any individual or corporate taxpayer filing a Hawaii net income tax return can claim the credit for an eligible system installed and placed in service in Hawaii during the tax year.1Justia. Hawaii Code 235-12.5 – Renewable Energy Technologies; Income Tax Credit The system has to be new and must generate electricity or produce thermal energy such as heated water. There are no income restrictions on eligibility itself, though income does affect one of the refund options discussed below.
You have to own the system. If you signed a power purchase agreement or leased your panels, the credit belongs to the company that owns the equipment, not to you. When a system is co-owned, each owner claims a share proportional to what they paid toward the total cost, and each files a separate Form N-342.2Hawaii Department of Taxation. Instructions for Form N-342 – Renewable Energy Technologies Income Tax Credit
Which Systems Qualify
The statute covers two categories: solar energy systems and wind-powered energy systems.1Justia. Hawaii Code 235-12.5 – Renewable Energy Technologies; Income Tax Credit Geothermal is not on the list, so despite Hawaii’s volcanic geography a geothermal installation does not qualify under 235-12.5.
Solar splits into two subcategories at tax time. Solar thermal water heating systems, where the primary purpose is heating water for household use, get their own cap. All other solar systems, mostly photovoltaic panels that generate electricity, sit in a second subcategory with a higher cap. Both earn a credit of 35 percent of actual cost. Solar water heating systems have to meet applicable building and electrical codes, and the OG-300 certification from the Solar Rating and Certification Corporation is the standard reference for confirming performance compliance.3ASPE Pipeline. ICC-SRCC Releases Expanded Solar Water Heating System Ratings to Cover All of North America
Wind systems qualify at a lower rate of 20 percent of actual cost. The same general code-compliance rules apply.
Credit Rates and Cap Amounts
The credit is a percentage of your actual installation cost, but it cannot exceed a fixed cap that depends on the system type and property classification.1Justia. Hawaii Code 235-12.5 – Renewable Energy Technologies; Income Tax Credit
Solar water heating systems, at 35 percent of actual cost:
- Single-family residential: $2,250 per system
- Multi-family residential: $350 per unit per system
- Commercial: $250,000 per system
All other solar systems, including photovoltaic, at 35 percent of actual cost:
- Single-family residential: $5,000 per system
- Multi-family residential: $350 per unit per system
- Commercial: $500,000 per system
Wind-powered systems, at 20 percent of actual cost:
- Single-family residential: $1,500 per system
- Multi-family residential: $200 per unit per system
- Commercial: $500,000 per system
For a typical residential PV installation, multiply the actual cost by 0.35 and compare it against $5,000. A $15,000 system generates 35 percent of $15,000, which is $5,250, so the credit is capped at $5,000.
How Actual Cost Is Figured
Actual cost covers expenses related to the system, including accessories and installation. It excludes consumer incentive premiums unrelated to the system’s operation and any costs already claimed under another Hawaii tax credit.1Justia. Hawaii Code 235-12.5 – Renewable Energy Technologies; Income Tax Credit You also subtract the dollar value of any utility rebate before applying the credit percentage. Form N-342 walks you through this: total system cost, minus rebates and other-credit costs, times the applicable percentage.4Hawaii Department of Taxation. Form N-342 – Renewable Energy Technologies Income Tax Credit
Output Capacity Rule for Photovoltaic Systems
Photovoltaic systems installed after January 1, 2013 have to meet minimum output capacity thresholds set by Hawaii’s administrative rules:5Hawaii Department of Taxation. Calculation – Allocation of Actual Cost for Other Solar Energy Systems
- Single-family residential: 5 kilowatts per system
- Multi-family residential: 0.360 kilowatts per unit per system
- Commercial: 1,000 kilowatts per system
A system that falls short can still qualify if it is the only system you are claiming a credit for on the property, or if only one of multiple systems fails to meet the threshold. Otherwise, the credit may be reduced or disallowed.
Refund Options and Carryforward
By default, the credit is non-refundable. It offsets your Hawaii income tax, and any unused portion carries forward to future years, with no time limit, until you use it up.6FindLaw. Hawaii Code 235-12.5 – Renewable Energy Technologies Income Tax Credit Two elections let some taxpayers get a refund instead.
Reduced-Rate Refundable Election for Solar
For solar systems only, any taxpayer can choose to take a 30 percent reduction in the credit and receive the reduced amount as a refund if it exceeds tax liability.7Hawaii Department of Taxation. Hawaii Revised Statutes Chapter 235 – Income Tax Law The election is irrevocable and is made on the return for the year the system is placed in service. You can make a separate election for each system. If your tax liability is small and carryforward would stretch out for years, taking the reduced refundable amount can be the better outcome even though you permanently give up 30 percent of the credit.
Full Refundable Election for Lower-Income and Retired Filers
An individual taxpayer can elect the full credit as refundable for any solar or wind system if either condition is met:2Hawaii Department of Taxation. Instructions for Form N-342 – Renewable Energy Technologies Income Tax Credit
- All of your income and your spouse’s income is exempt retirement income, such as pension distributions, Social Security, or public retirement system distributions.
- Your Hawaii adjusted gross income is $20,000 or less, or $40,000 or less if married filing jointly.
This election is also irrevocable. Married couples filing separately can claim it only to the extent they would have qualified on a joint return.
How to Claim It
File Hawaii Form N-342 with your income tax return, using one form for each system.2Hawaii Department of Taxation. Instructions for Form N-342 – Renewable Energy Technologies Income Tax Credit Depending on your situation you may also need Schedule CR, Form N-342A if you are claiming a share passed through from a partnership, S corporation, estate, trust, or condominium association, or Schedule K-1 for a distributive share from a partnership, S corporation, estate, or trust. Keep invoices, contracts, proof of payment, and any SRCC certification documentation for a solar water heating system in case the state asks to see them.
When the System Is Placed in Service
A residential system is placed in service once three things are all true: you have paid the actual cost, installation and related electrical work are finished, and any required inspection requests have been submitted to the appropriate government agency.2Hawaii Department of Taxation. Instructions for Form N-342 – Renewable Energy Technologies Income Tax Credit If the system fails inspection, the credit waits until the year it passes. A December install that clears inspection in January is a January-year credit.
Stacking With the Federal Credit
The federal Residential Clean Energy Credit under Internal Revenue Code Section 25D provided a 30 percent credit for qualifying solar and clean energy installations from 2022 through 2032.8Internal Revenue Service. Residential Clean Energy Credit Recent federal legislation may have changed the availability of the federal credit for systems placed in service after December 31, 2025, so anyone installing in 2026 should verify current federal rules with the IRS or a tax professional.
Hawaii’s calculation does not require you to subtract the federal credit from actual cost. The statute only excludes utility rebates and costs claimed under another Hawaii state credit, so the federal credit and Hawaii credit have historically applied independently on the same installation.
Penalties for False Claims
A false or fraudulent claim is a serious matter. Under HRS 231-36, knowingly submitting a tax return or statement that is false as to any material matter is a class C felony.9Justia. Hawaii Code 231-36 – False and Fraudulent Statements; Aiding and Abetting Fines can reach $100,000 for individuals and $500,000 for corporations, with up to three years of imprisonment or probation. Anyone who helps prepare a fraudulent claim faces the same penalties, even if the taxpayer was unaware. A disallowed credit also means owing the tax you originally offset, plus interest.