The IRC Sec. 45L tax credit initially applied to developers, homebuilders, and others building energy-efficient homes, sold or leased after 2005. It provided a credit worth $2000 per home. The criteria, at the time, meant that many homes did not qualify for the credit. The Inflation Reduction Act of 2022 changed a number of existing credits and 45L was one of them.
First of all the original version of 45L was extended through 2022 as part of The Consolidated Appropriations Act (2021). Then, for 2023, as part of the Inflation Reduction Act (2022), the potential credit amount increased to as much as $5,000 per unit (single or multi-family developments). This version of the credit has been extended through 2032. While this credit is primarily aimed at new construction, substantial reconstruction, and rehab also qualify. There is no limit on this credit. It is usable for one dwelling or a development of hundreds of dwellings. The credit is not available, however, to homeowners residing in the structure but to builders and developers (hence the “sold or leased” stipulation). If you build a home and lease it you likely qualify.
The energy efficiency criteria also change in 2023 to align with the Energy Star and Zero Energy Ready Homes programs of the Department of Energy. Energy Star labeled products earn the distinction by proving they save money and energy. A Zero Energy Ready home is a residence that is so energy efficient that it offsets most of the home’s energy use in a year. These two programs provide clear criteria for qualifying for the tax credit and provide demonstrable, positive environmental impact and, in many instances, cost savings. The links above include specific requirements.
The new energy efficiency criteria mean that more residential developments are now eligible. Previously only low-rise residential developments were. New building codes in many locations and trends in the construction industry mean that many developers are using energy-efficient measures that qualify for a 45L Tax Credit as normal business. Odds are that your newly constructed residential property qualifies. One important requirement is a third-party certification. You cannot perform this certification yourself or have anyone related to you perform it. The details on certification can be found in this nine-page document from the IRS. The credit can be claimed retroactively for three years and unused credits can carry forward.
For assistance with your 45L claim contact Hito LLC.