Hawaii homeowners shopping for solar in 2026 are navigating a changed tax credit landscape. The federal 30% residential solar ITC is gone. But Hawaii's own credit — the RETITC — is still very much alive, and most homeowners don't fully understand how it works. That gap costs real money.
The key fact: the Hawaii RETITC is not a $5,000 per-system cap. It's a $5,000 cap per 5 kW block. A 6 kW system qualifies for over $7,000 in state credits. An 8.4 kW system qualifies for over $9,000. If you thought the max was $5,000, you're leaving money on the table — or worse, your installer might be, too.
Federal ITC: What Expired and What Didn't
The federal Investment Tax Credit (ITC) for residential solar — Section 25D of the Internal Revenue Code — expired December 31, 2025. Under current law, there is no federal tax credit for homeowners who purchase a solar system installed after that date. Congress has not extended it.
If a solar proposal dated 2026 includes a 30% federal tax credit for a residential cash purchase or loan, it is using outdated math. That credit no longer exists for residential buyers. Ask your installer to confirm they've updated their calculations.
What's Still Available at the Federal Level
| Credit | Status | Who Qualifies | Amount |
|---|---|---|---|
| Section 25D (Residential ITC) | Expired Dec 31, 2025 | Homeowners who purchase a residential system | 0% — expired |
| Section 48E (Commercial ITC) | Active through 2027 | Businesses, LLCs, corporations that own solar | 30% of system cost |
| Lease/PPA pass-through | Active | Homeowners using third-party ownership structures | Corporate § 48E claimed by installer, passed to homeowner as lower pricing |
The commercial ITC (§ 48E) didn't expire — it moved. Corporations still get 30%. Some installers are now structuring deals where a financing company owns the system, claims the commercial ITC, and passes those savings to the homeowner through a lower-cost lease or PPA. You don't get the credit directly, but you get the benefit as reduced pricing.
Hawaii RETITC: How the Per-Block Credit Actually Works
Hawaii's Renewable Energy Technologies Income Tax Credit (RETITC), codified at HRS §235-12.5, is the main tax advantage available to homeowners in 2026. Here's how it actually works — and how most people misunderstand it.
The Statute
The credit is 35% of the cost of a qualified renewable energy system, capped at $5,000 per 5 kW of capacity. That phrase — "per 5 kW" — is the key. It means:
- A 5 kW system qualifies for up to $5,000 in state credits (35% of cost, capped at $5K)
- A 6 kW system qualifies for up to $7,000+ — $5,000 for the first 5 kW block, plus 35% of the cost allocated to the remaining 1 kW
- A 10 kW system qualifies for up to $9,800 — two complete 5 kW blocks at $5,000 each (assuming cost per kW is high enough to reach the cap)
- A 15 kW system qualifies for up to $15,000 — three blocks
The per-5kW-block structure is not a workaround or an optimization trick. It's the explicit design of HRS §235-12.5. Four independent licensed installers, all quoting the same Oahu homeowner in 2026, calculated credits this way. Hawaii Energy Connection's own terminology document states: "For each 5 kilowatts (kW) of PV system, Hawaii State Tax Credits are 35% of the installed cost or $5,000 whichever is less."
The Math in Plain English
Here's how a typical calculator works through it:
The contrast with a flat $5,000 cap is stark. Under the correct per-block calculation, this homeowner is owed $7,399 in state credits. If the calculation stopped at $5,000, they'd leave $2,399 unclaimed.
Real Quote Data: What 4 Installers Calculated
We reviewed four quotes submitted to us for the same Mililani homeowner in April 2026 — different installers, same address, same roof. Every installer that calculated state credits applied the per-5kW-block methodology. Here's what the numbers showed:
| Installer | System Size | Gross Cost | State Credit Calculated | Block 1 | Block 2 |
|---|---|---|---|---|---|
| Installer A (Cash) | 6.16 kW | $36,406 | $7,399 | $5,000 | $2,399 |
| Installer B | 6.02 kW | $36,061 | $7,139 | $5,000 | $2,139 |
| Installer C | 8.4 kW | $30,180 | $9,276 | $5,000 | $4,276 |
Every installer applied the per-5kW-block calculation. None capped at $5,000 for the full system. The methodology is consistent across Hawaii's licensed solar installer community because it reflects the actual statute.
The Contrast: What You'd Lose Under a Flat $5K Cap
For the 8.4 kW system, a homeowner using the wrong calculation would expect a $5,000 credit — and miss out on $4,276 they're actually entitled to.
Refundable vs. Non-Refundable Election
The RETITC has two modes, and choosing between them matters if your Hawaii state tax liability is lower than your calculated credit.
Standard (Non-Refundable) Credit
The default credit is non-refundable. It reduces your Hawaii state tax liability. If your credit is larger than your tax bill for the year, the remainder carries forward to future tax years. This is the better option for most W-2 employees with regular Hawaii income — you can use the full 35% credit over multiple years if needed.
Refundable Credit Option
If you elect the refundable version, Hawaii will pay out your credit as a cash refund regardless of your tax liability — but at a reduced rate. The refundable credit is approximately 30% less than the standard credit (so roughly 24.5% effective rate instead of 35%).
| Option | Effective Rate | How It Pays Out | Best For |
|---|---|---|---|
| Standard (non-refundable) | 35% | Reduces tax liability; remainder carries forward | Most homeowners with regular Hawaii income |
| Refundable election | ~24.5% (30% less) | Cash refund, no carry-forward needed | Low income, retirees, limited Hawaii tax liability |
On a $7,399 credit, electing refundable costs you approximately $2,220 (30% of the credit). If you have enough Hawaii state tax liability to absorb the full credit over 1–3 years, the standard non-refundable option is almost always worth more. Consult a tax professional before making this election.
Why Installers Design Systems at 5.5–6+ kW
Understanding the per-block structure explains a pricing pattern many homeowners have noticed: why do so many system proposals come in right above 5 kW rather than right at 5 kW?
A system at exactly 5 kW gets one block: up to $5,000 in credits. A system at 5.1 kW gets the same first block plus a small second block — and importantly, the marginal cost of that extra 0.1 kW is almost entirely offset by the 35% credit on it. At $5,500/kW for that extra capacity, each additional kilowatt generates 35¢ per dollar in additional credits, making the incremental cost much lower than the sticker price suggests.
The Credit Cliff at 5 kW
The practical implication: if an installer proposes a 5.5 kW system when 5.0 kW would meet your energy needs, that's not necessarily oversizing — it may mean your second block credit makes the additional capacity cost-effective. The right question is whether the added kWh offset justifies the net incremental cost after credits.
Ask your installer for a credit-adjusted comparison: what does the 5.0 kW system cost net of credits, vs. the 5.5 kW system net of credits? Often the difference shrinks significantly once the second block credit is factored in. Use our Tax Credit Calculator to run the numbers yourself.
Pending Legislation: HB 513 and SB 2888
Two bills in the 2025–2026 Hawaii legislative session could change the credit structure. Neither is law yet — do not rely on either for current purchasing decisions.
Proposes expanding RETITC credits to include standalone battery storage retrofits (existing solar homes adding batteries without new PV). Under current law, battery credits require a new PV installation. HB 513 would allow retrofit battery credits on their own merits.
Proposes increasing the RETITC from 35% to 45% — a significant increase that would make Hawaii's state credit substantially more valuable. Also pending, also not yet law. If passed, per-block caps would apply to the new 45% rate.
35% credit, $5,000 cap per 5 kW block. Non-refundable by default; refundable option available at 30% lower value. Applies to PV systems and battery storage purchased with new PV.
If SB 2888 passes (45% rate), systems installed after the effective date would get a larger credit. But bills fail, stall, and get amended — the current 35% credit is real and available now. Most homeowners who've been waiting for "something better" are still waiting while paying full utility rates. Decide based on current law.
What to Ask Your Installer
Most reputable Hawaii solar installers apply the per-block calculation correctly. But given the stakes — potentially thousands of dollars in miscalculated credits — it's worth asking directly. Here are the specific questions:
Calculate Your Credits Before You Sign Anything
Enter your system size and cost — our Tax Credit Calculator runs the per-5kW-block math and shows your estimated RETITC credit, broken out block by block.
Open Tax Credit Calculator → Compare QuotesThe Bottom Line
The federal ITC is gone for residential buyers. Don't let anyone tell you otherwise. If a 2026 proposal includes a 30% federal credit on a cash or loan purchase, the numbers are wrong.
Hawaii's RETITC is alive and worth more than most homeowners realize. The $5,000 cap applies per 5 kW block — not per system. A 6 kW system is worth $7,000+ in state credits. An 8.4 kW system is worth $9,000+. Know this number before you negotiate.
The per-block calculation is the law, not a trick. It's been confirmed by multiple independent installers quoting the same homeowner, Hawaii Energy Connection's own terminology documentation, and the plain text of HRS §235-12.5.
When comparing proposals, always ask for the net cost after credits — broken out by block. The gross price is a starting point. The net price is what you're actually paying. To see what your neighbors are actually paying in your area, check out real $/watt data by Oahu neighborhood →
Disclaimer: Consult a qualified tax professional for advice specific to your situation. BrightNeighbors provides educational information based on public data and should not be considered tax advice. Tax credit calculations shown are estimates based on publicly available information about HRS §235-12.5. Individual eligibility, income limitations, and carry-forward rules vary. Hawaii legislative information is current as of April 2026 — verify bill status at capitol.hawaii.gov before making purchasing decisions.