Contractors, Builders & Property Owners
Contractors and builders of energy-efficient apartments and homes are able to reward their efforts by obtaining 45L Energy Efficient Home Credits. 45L is a lucrative tax incentive for the construction or renovation of residential buildings to align with the Department of Energy’s residential energy-efficiency programs.
45L allows qualifying builders and contractors who meet their state’s prevailing wage requirements to collect up to $2,500 for each unit of property that qualifies for Energy Star certification, or $5,000 for each unit that meets the Zero Energy Ready Homes (ZERH) requirements. It is especially profitable for multifamily home developers, as each qualifying unit can earn additional credit.
Eligible contractors and builders must own and have a basis in the qualified energy-efficient home during its construction.
How the Inflation Reduction Act Impacts 45L Tax Credits
The Inflation Reduction Act (IRA) of 2022 introduced some major changes to the 45L tax credit. It shifted the eligibility from a flat energy efficiency threshold to a structure that aligns with Department of Energy program requirements, increased the maximum credit value, and expanded eligibility to include buildings over three stories high. Take a look at the values of the 45L:
| 2022 & Earlier | 2023-2032 | ||||
|---|---|---|---|---|---|
| 50% Energy Savings Over Reference Building | EnergyStar | EnergyStar and Prevailing Wage | Zero Energy Ready Home (ZERH) | ZERH and Prevailing Wage | |
| Multifamily Homes | $2,000 | $500 | $2,500 | $1,000 | $5,000 |
| Single Family Homes | $2,000 | $2,500 | $2,500 | $5,000 | $5,000 |
| 2022 & Earlier | |
|---|---|
| 50% Energy Savings Over Reference Building | |
| Multifamily Homes | $2,000 |
| Single Family Homes | $2,000 |
| 2023-2032 | |||||
|---|---|---|---|---|---|
| Energy Star | Energy Star and Prevailing Wage | Zero Energy Ready Home (ZERH) | ZERH and Prevailing Wage | ||
| Multifamily Homes | $2,000 | $500 | $2,500 | $1,000 | $5,000 |
| Single Family Homes | $2,000 | $2,500 | $2,500 | $5,000 | $5,000 |
Eligible contractors / builders are defined by the IRS as
- Individuals
- A trust
- An estate
- A partnership
- An association
- A company
- A corporation
In order to receive the benefits, builders and contractors must apply and document their installments before the construction crew breaks ground.
Qualifying project characteristics
- Projects must be built on the territory of the United States
- For the minimum deduction, projects must meet the Energy Star certification requirements
- For the maximum deduction for multifamily homes, projects must meet the Zero Energy Ready Home (ZERH) requirements and meet their state’s prevailing wage requirements
- For the maximum deduction for single-family homes, projects must meet the Zero Energy Ready Home (ZERH) requirements