In 2005, the Internal Revenue Code added an internal revenue incentive called the Energy Efficient Home Credit, more commonly known as 45L. This incentive allowed “Eligible Contractors” to collect tax credits for the construction of energy-efficient homes. Eligible Contractors are categorized by the IRS as any trust, estate, partnership, company, or corporation that was in charge at the time of construction to collect tax incentives.
Since the introduction of 45L, the provision has repeatedly expired and extended through the past 16 years. The next expiration date is December 31, 2021, so we can expect the act to be approved and extended once again.
45L provides tax credits to homebuilders and multifamily residential developers by encouraging them to invest in energy-efficient properties. Single-family homes, multifamily homes, multifamily residential properties fewer than four stories above ground, such as dormitories and apartment buildings.
Contractors who construct or substantially renovate any of the qualifying properties have the ability to claim a $2,000 credit per dwelling unit depending upon the level of energy savings achieved. These credits can be claimed by the contractor’s tax return up to three years back. That means the potential savings can mean more money in your pocket for a significant amount of time.
If you are a contractor or owner who has built or renovated a qualifying property but did not claim in the prior tax years, you can still retroactively amend your returns and claim your credits for the past three years. If the contractor is a BBA partnership, the missed credits can be claimed in the current tax year. This can easily be done with a qualified and experienced 45L tax expert.
To figure out if your project qualifies, we recommend setting up a consultation with an expert who can walk you through the process. Despite 45L being a tax provision, according to the law, you have to have a third party engineer who specializes in the 45L Tax Credit to qualify the property based on the building codes and standards:
- Qualifying properties must provide a level of heating and cooling energy consumption at least 50% below that of a comparable baseline property that is built in the same climate zone and in accordance with the minimum standards of Chapter 4 of the 2004 Supplement to the 2003 IECC. A reduction of at least 10% must be attributable to the building’s envelope components — walls, floor, roof, windows, etc. The heating and cooling equipment must also meet the latest minimum DOE efficiency standards under the National Appliance Energy Conservation Act of 1987 in effect at the time of completion of construction.
The best way to ensure you qualify is to consult an expert right now. Our team at National Tax Group will work with you from the very beginning to make sure all energy-saving threshold requirements are met, and that the proper paperwork is collected. If you think you qualify for this retroactive credit, schedule a free assessment of benefits.