With electric utility costs in the islands consistently among the highest in the nation, homeowners are finding it increasingly compelling to install a solar electric system which can offset some or all of the power otherwise provided by the utility. And given the eight-year extension and expansion of the Federal tax credit available to homeowners who purchase a PV system, the time has never been better to go solar electric.
2009 Fed RE tax credit WSJ article

As of January 1, 2009, homeowners can now claim up to 30 percent of the installed cost of a solar electric system with no limit on that credit amount. Prior to 2009, homeowners could only claim a maximum of $2,000 per year from the purchase of a PV system for their homes. With this cap now removed, the only limit is how quickly those federal tax credit dollars can be monetized based on the homeowner’s federal tax liability year to year. If more federal tax credit value is accrued than the homeowner’s federal tax liability, that surplus or unused amount may be rolled forward until exhausted for a maximum of 20 years. (Unused federal tax credits cannot currently be refunded.)

The State of Hawaii also encourages homeowners to go solar electric with the Renewable Energy Technology Tax Credit. Homeowners can accrue a state tax credit of up to 35 percent of the installed cost of the system or $5,000 per year, whichever is less. And if a homeowner has more tax credit value than their state tax liability, the unused tax credit dollars can be rolled forward into future tax years until exhausted. (Unused state tax credits cannot currently be refunded.)

Let’s look at a specific example of how these two tax credits dramatically bring down the cost of an installed solar electric system.

Estimated cost of an installed 2.25 kilowatt PV system = $25,000
Federal tax credit available = $7,500
State tax credit available = $5,000
Total tax credits available = $12,500 or one-half the cost of the system

And if you’re interested in a “starter” system and growing it over time, you may choose to install a smaller system in year one and expand the solar capacity the following year(s). In order to make this simple to do, we would install a larger inverter from the get-go which would allow for easy system expansion without having to swap out the original inverter. Besides spreading out the investment burden over time, installing a solar electric system incrementally should allow for the homeowner to take advantage of the state tax credit each year that more solar capacity is added.

PV for Hawaii Businesses

The Aloha State is perhaps the best place in the nation for businesses to go solar electric. Not only do we have the sun in great abundance across the islands, but also the generous state and federal tax credits, along with an accelerated depreciation schedule, make the installation of a photovoltaic system an outstanding investment especially in these difficult economic times.

Up to 80 percent of the system's total cost can be returned to the purchaser within the first year alone. When the accelerated depreciation is factored in, almost 100 percent of the cost of the system can return to the purchaser, not including utility bill savings, by the end of the first six years of PV system operation. When electric bill savings are added, complete system payback can be achieved in as little as three years assuming that the tax credits and depreciation dollars can be monetized that quickly and the system is purchased out-of-pocket.

The Federal tax credit available for the purchase of a commercial PV system is 30 percent of the installed cost of the system with no cap with a 20-year roll-forward period to apply the tax credit. (Unused federal tax credits cannot currently be refunded.)

The State tax credit available for the purchase of a commercial PV system is 35 percent of the installed cost of the system or $500,000, whichever is less, with unused tax credit dollars rolled forward until exhausted. (Unused state tax credits cannot currently be refunded.)

As part of the financial evaluation of a Hawaii business purchasing a ProVision PV system, we prepare a detailed analysis. Contact us if you’re interested in how these savings and cash-flow numbers stack up for your business.

Financial Incentives for Hawaii Homes and Businesses to go Solar Electric:

• State of Hawaii Renewable Energy Technology Tax Credit
  
• Federal Residential Energy Tax Credit
  
• Federal Business Energy Tax Credit
  
• Federal and State Accelerated Depreciation
  
• Energy Savings

State of Hawaii Renewable Energy Technology Tax Credit: For homeowners, this income tax credit allows a credit of 35 percent of the cost of equipment and installation of an active solar electric system or $5,000, whichever is less. For business owners, this corporate income tax credit allows a credit of 35 percent of the cost of equipment and installation of an active solar electric system or $500,000, whichever is less. The credit is to be applied in the year in which the system is purchased and placed into service. Tax credits that exceed the taxpayer's income tax liability may be used as a credit against the taxpayer's income tax liability in subsequent years until exhausted.
(HI Form N-334A (2008) RE credit for S Corp, Partnerships, Trusts, Condo Assns.pdf)
(HI Form N-334 (2008) RE Tax Credit.pdf)
(HI Inst N-334 Instructions for N-334.pdf)

Federal Residential Energy Tax Credit: For homeowners, this income tax credit allows a credit of 30 percent of the cost of equipment and installation of an active solar electric system with no cap. Tax credits that exceed the taxpayer's income tax liability may be used as a credit against the taxpayer's income tax liability for a maximum of 20 years. The receipt of any grant or cash rebate monies for the PV system would reduce the cost basis from which to calculate the tax credit.
(IRS Form 5695 Residential Tax Credit.pdf)

Federal Business Energy Tax Credit: The business energy tax credit is a 30 percent tax credit available to commercial businesses that invest in or purchase energy property in the U.S. Energy property includes solar and geothermal energy. The energy property must be operational in the year in which the credit is first taken. The receipt of any grant or cash rebate monies for the PV system would reduce the cost basis from which to calculate the tax credit.
(IRS Form 3468 Commercial Investment Credit.pdf)
(IRS Form 3800 General Business Credit.pdf)

Federal and State Accelerated Depreciation: An additional incentive for businesses to go solar electric is the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, businesses can recover investments in solar electric equipment through depreciation deductions. For solar electric equipment, the current MACRS property class is five years.
( IRS Form 4562 (2008) Depreciation.pdf)
(IRS Inst 4562 (2008) Instructions for Form 4562.pdf)

Energy Savings: A ProVision solar electric system provides a monthly savings on your electric bill by replacing some or all of your purchased utility kilowatt-hours with solar-generated electricity. These savings will depend on the size of the installed system, time of year, location and the price of electricity and will be realized every month over the life of the equipment, which is estimated at 30 years. The savings potential will be even greater should the cost of utility electricity rise over time.

Required lawyer language. At present the Federal tax credit is scheduled to expire at the end of 2016 while the State tax credit currently has no sunset date. ProVision makes no binding claims or guarantees regarding the accrual of tax credits and depreciation dollars from the purchase of a solar electric system. Consult with your tax advisor, accountant, IRS or Hawai'i Department of Taxation for eligibility requirements and details on how these credits should be calculated for your own individual or corporate situation.