State of Hawaiʻi and Federal Incentives

STATE OF Hawaiʻi INCENTIVES

Hawaiʻi Renewable Energy Technologies Income Tax Credit (RETITC)

The Hawaiʻi Department of Taxation oversees the Hawaiʻi Renewable Energy Technologies Income Tax Credit (RETITC). RETITC is a Hawaiʻi State tax credit that allows individuals or corporations to claim an income tax credit for up to 35 percent of the total cost for a solar PV, solar space heating, or solar thermal water heating system, subject to cap amounts, and up to 20 percent of the cost for wind-powered energy systems. If the credit earned exceeds the total amount of taxes owed by a tax payer in a single tax year, the credit may be carried forward. Under certain conditions the credit may be refundable. Please note: The maximum incentive cap varies by technology and property type.

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Database of STATE Renewable Energy and Energy Efficiency Incentives Available in Hawaiʻi

The Database of State Incentives for Renewables & Efficiency (DSIRE), maintained by the North Carolina Clean Energy Technology Center and originally funded by the United States Department of Energy, is a free and open resource providing a searchable database of incentives and policies available for clean energy in each state.

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Property Tax Incentives

Certain counties within Hawaiʻi offer property tax incentives.

County of Kauai – Commercial Alternative Energy
Facilities Exemption

In 2009, the City and County of Honolulu created a real property tax exemption for alternative energy improvements. Alternative energy improvements include solar, wind, hydropower, tidal, wave, solid waste and increased efficiency in fossil fuel burning facilities.

City and County of Honolulu – Real Property Tax Exemption for Alternative Energy Improvements

Hawaiʻi Enterprise Zones

Currently, wind energy producers may be eligible for this incentive that provides a 100% general excise tax exemption as well as reductions in state income taxes in exchange for demonstrated job growth. This incentive is available statewide in designated geographic areas.

About Enterprise Zones

Hawaiʻi Foreign Trade Zone

Hawaiʻi’s Foreign Trade Zone Program supports manufacturing and small business activity in Hawaiʻi by encouraging companies to compete in export markets and providing growth to new companies that import and export merchandise, including renewable energy and energy efficiency equipment.

Explore Hawaiʻi’s International Trade

Renewable Fuels Production Tax Credit

In June of 2022, Governor Ige signed Act 216, which reinstates (with changes) the Renewable Fuels Production Tax Credit (RFPTC).

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FEDERAL INCENTIVES

Residential Tax Credits

Due to the passage of the One Big Beautiful Bill (OBBB), the deadline for the Residential Clean Energy Credit (25D) and the Energy Efficient Home Improvement Credit (25C) has been significantly altered, generally terminating for expenditures made or property placed in service after December 31, 2025. Please refer to the IRS-FAQ Tax Credit Changes link for more information.

Eligible homeowners, including renters for certain expenditures, may be eligible for federal tax credits for energy and other efficient appliance purchases. Products eligible for federal tax credits include solar panels for electricity, home backup power battery storage (capacity greater than 3 kWh), solar water heating products, and other qualified energy efficiency upgrades. Please see additional links below for additional information:

Federal Residential Credit FAQ’s (Section 25D)

The deadline for the Residential Clean Energy Credit (Section 25D) is December 31, To qualify, the PV system must be placed in service by this date. This means the system must be fully installed, operational, and ready for use. Simply purchasing the equipment and having it stored will not be eligible for the credit. There are no phasedown periods; the credit will expire completely after this date.

FAQs for modification of sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, AND 179D under Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill (OBBB) | Internal Revenue Service

For the Residential Clean Energy Credit (Section 25D), “placed in service” means that the PV system is fully installed, connected to the dwelling, and ready to generate electricity. This is a critical distinction from simply making an “expenditure.” The tax credit is claimed for the tax year in which the property is completed, installed and placed in service, not when it is purchased.

Qualified expenditures for the residential credit include more than just the equipment. They are defined as the costs of the new, qualified clean energy property and also include:

Ancillary Costs: This means that costs for design and permitting that are directly
related to the on-site installation can be included.
Equipment Costs: The cost of the solar panels and other necessary hardware.
Labor Costs: All labor for the on-site preparation, assembly, and original
installation of the system.
Installation Materials: Costs for wiring, piping, or other materials required to
connect the system to your home.

Home energy tax credits | Internal Revenue Service

Yes, battery storage systems qualify for the residential credit. They must meet the following requirements:

New Property: Be new and previously unused. The credit applies to battery systems installed at the same time as new solar panels or to standalone battery systems installed at a later date, as long as it’s no later than the December 31, 2025, deadline.
Capacity: Have a capacity of at least 3 kilowatt-hours (kWh).
Installation: Be installed in connection with a residential dwelling.

Residential Clean Energy Credit Internal Revenue Service

Disclaimer: The information provided in this FAQ is for informational purposes only and does not constitute tax advice. You should consult with a qualified tax professional to determine your eligibility for these tax credits and how they apply to your specific situation.

Residential Tax Credits Information

Federal Residential Credit FAQ’s (Section 25D)

Business Tax Credits

The deadlines for several business energy tax credits have been significantly altered due to the passage of the One Big Beautiful Bill (OBBB), which accelerates the termination or phase-out of many incentives, including those for commercial clean vehicles and clean electricity projects.

Federal tax credits for energy technologies include investment tax as well as production tax credits, fuel credits, and vehicle credits. These credits encourage businesses to adopt clean energy practices and invest in energy-efficient property. Please see additional links below for additional information:

Renewable Electricity Production Tax Credit (PTC)

Business Energy Investment Tax Credit (ITC)

179D Commercial Buildings Tax Deduction

Federal Commercial Credit (Section 48) FAQ’s

Business Tax Credits Information

Federal Commercial Credit (Section 48) FAQ’s

No, the deadlines are different. The Investment Tax Credit (ITC) for commercial PV installations (Section 48) has different requirements and a later expiration timeline than the residential credit:

Projects that are fully installed and placed in service by December 31, 2027, are eligible for the full credit, regardless of their construction start date.
Projects that begin construction by July 4, 2026, may also be eligible for the full credit, provided they are placed in service within a four-year window (by December 31, 2030).

Sections 45Y and 48E Beginning of Construction Notice

Recent guidance from the Internal Revenue Service (IRS) has significantly changed how “begin construction” is defined, especially for larger projects. For solar projects with a nameplate capacity of 1.5 megawatts (MW) (alternating current or AC) or greater, the 5% Safe Harbor has been eliminated as a method for establishing the beginning of construction. These projects must now rely on the Physical Work Test and must meet the Continuity Requirements.2

The Physical Work Test:

This test is based on a “facts and circumstances” analysis. Construction is considered

to have begun when “physical work of a significant nature” starts on the project. This can include both on-site and off-site work. For a solar facility, on-site work could consist of activities such as:

Excavation for foundations.
Pouring concrete pads.
Installing racks or other support structures for the solar panels.

Off-site work, such as the manufacturing of specialized components for the project, can also be considered if it is done under a binding written contract. The key is that the work must be of a “significant nature” and not just preliminary activities like planning, design, or land surveying.

For smaller solar projects – 1.5 MW (AC) or less – the 5% Safe Harbor may still be available.

Continuity Requirement:

Simply “beginning construction” is not enough to secure the tax credit. The IRS also requires a “continuous program of construction.” To satisfy this requirement, a taxpayer must demonstrate “continuous efforts” toward completing the project after construction has begun.

There is a “Continuity Safe Harbor” which provides a straightforward way to meet this requirement. If the project is placed in service by the end of the fourth calendar year after the calendar year in which construction began, the continuity requirement is automatically satisfied. If a project takes longer than four years, the taxpayer must be able to prove that a continuous program of construction was maintained.3

In summary, for most commercial PV projects, “begin construction” in tax terms means starting a continuous program of “physical work of a significant nature,” such as on-site civil and electrical work, or the off-site manufacturing of custom components, with the goal of completing the project within a reasonable timeframe, typically a four-year window.

Sections 45Y and 48E Beginning of Construction Notice

Qualified expenditures for the residential credit include more than just the equipment. They are defined as the costs of the new, qualified clean energy property and also include:

Equipment Costs: The cost of the solar panels and other necessary hardware.
Labor Costs: All labor for the on-site preparation, assembly, and original installation of the system.
Installation Materials: Costs for wiring, piping, or other materials required to connect the system to your home.
Ancillary Costs: This means that costs for design and permitting that are directly related to the on-site installation can be included.

Home energy tax credits | Internal Revenue Service

As of January 1, 2026, all projects under Section 48 will be subject to the Prohibited Foreign Entity (PFE) rules. These rules disqualify a project from receiving the tax credit if it is owned by a PFE or if it receives “material assistance” from a PFE. To avoid these new restrictions, projects must either begin construction by July 4, 2026, or be placed in service by December 31, 2027. To be safe and avoid the PFE rules entirely, projects should commence construction before the end of 2025.5 Additional IRS guidance is forthcoming.

Navigating OBBBA: phaseouts, prohibited foreign entity rules, and other new rules – The Tax Law Center

Renewable Energy Production Tax Credit (PTC)

Wind facilities commencing construction by December 31, 2019, can qualify for this credit. The value of the credit steps down in 2017, 2018, and 2019. See below for more information. For all other technologies, credit is not available for systems whose construction commenced after December 31, 2016.

Residential Renewable Energy Tax Credit

A taxpayer may claim a credit of 30% of qualified expenditures for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer.

Program Overview

Corporate Depreciation (Modified Accelerated Cost-Recovery System)

The Consolidated Appropriations Act, signed in December 2015, extended the “placed in service” deadline for bonus depreciation. Equipment placed in service before January 1, 2018, can qualify for 50% bonus depreciation. Equipment placed in service during 2018 can qualify for a 40% bonus depreciation. And equipment placed in service during 2019 can qualify for 30% bonus depreciation. Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain properties through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. A number of renewable energy technologies are classified as five-year property (26 USC § 168(e)(3)(B)(vi)) under the MACRS, which refers to 26 USC § 48(a)(3)(A), often known as the energy investment tax credit or ITC to define the eligible property. Such properties currently includes