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.
Key Changes in Section 45L Tax Credit Guidance Released
Yesterday, the IRS shared the long-awaited details on the revamped energy-efficient home credit under section 45L, as amended by the Inflation Reduction Act (IRA). A crucial shift to note is the transition in qualification criteria: previously, under the pre-2023 version, the tax credit was anchored on the IECC 2006 standards. The new guidance now pivots towards the current ENERGY STAR standards and the DOE’s Zero Energy Ready Homes Program (ZERH), marking a significant change in the landscape.
This reformed credit enables contractors to avail a tax incentive that spans from $500 up to an impressive $5,000 for each qualified new energy-efficient home they bring to life. The actual value of the credit is ascertained based on parameters like the home’s category, its energy efficiency metrics, and for multifamily residences, the compliance with prevailing wage stipulations.
Here are the key points:
The credit is tailored for qualified homes acquired after December 31, 2022.
- Notice 2023-65, accompanying this release, encompasses homes purchased up until December 31, 2032.
- The notice delineates aspects such as:
- The eligibility criteria for the credit
- Framework to compute the credit value
- Adhering to energy conservation benchmarks
- Steps for certification and documentation
Special Note for Our Clients:
As these changes take effect, the National Tax Group preconstruction team is primed to assist. Our expertise will be invaluable in helping you navigate the shift from IECC 2006 to the latest ENERGY STAR & ZERH standards. Engaging with us at the onset of your initiative ensures you’re best placed to unlock the full potential of these rewarding tax benefits. Our commitment remains: to guide you seamlessly through these tax credit opportunities.
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|
|Single Family Homes||$2,000||$2,500||$2,500||$5,000||$5,000|
Eligible contractors / builders are defined
by the IRS as
- 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