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Increased 45L Tax Credit Boosts Affordable Housing Development


Affordable housing developers have benefited greatly from the huge expansion of the 45L Tax Credit brought about by the Inflation Reduction Act (IRA). These tax credits have increased dramatically, almost tripling from prior levels to $5,000 per unit.

Major Updates to the 45L Tax Credit

  • Enhanced Credit Value: 

The extension enhanced the energy efficiency criteria. Energy Star or the Zero Energy Ready Home (ZERH) Standards set by the US Department of Energy are the new benchmark. Properties meeting Energy Star requirements may earn $500 to $2,500 per apartment, depending on whether the prevailing wage is being paid. The income per unit for properties that meet the ZERH standard requirements varies from $1,000 to $5,000, contingent upon the payment of prevailing salaries. Before the IRA, the law offered tax credits up to $2,000 per apartment using the earlier Energy Star guidelines.

  • Qualifications for All Building Heights: 

The credit is available for newly constructed single-family, multifamily, and prefabricated homes and deeply retrofitted existing properties. Higher standards must be met by certified houses and apartments to fulfill ZERH standards. The new standards do not include this Energy Star limitation for the $500/$2,500 credit, whereas, before the IRA, properties could only be three stories tall to qualify for the Energy Star Section 45L credit. But it looks like the ZERH guidelines have a restriction, at least for 2023, stating that properties must be taller than five stories to be eligible for the $1,000/$5,000 credit.


The new Energy Star and ZERH credits apply to projects that qualify between January 1, 2023, and January 1, 2033. The IRA extended the old Energy Star credit through December 31, 2022.

  • LIHTC Arrangements: 

The new framework eliminates the prior barrier, where 45L credits decreased the basis for computing Low-Income Housing Tax Credits (LIHTC). Due to this modification, all affordable housing projects—not simply those with extra or “excess” basis—may now be eligible for § 45L credits.


Get the Strategic Advantage 

The IRA has extended the 45L credits for 10 years, the longest period in history. With this extension, affordable housing developers will have more time to plan ahead and use these credits in conjunction with LIHTC.


Given the increased advantages of the 45L credits, developers must start planning as soon as possible. The impossibility of claiming these credits retroactively starting in 2023 emphasizes how urgent and proactive preconstruction planning must be. Developers will, therefore, be able to fully use the enhanced value and flexibility these updated tax credits offer.

Great Potential Ahead

In conclusion, those creating affordable housing have a great potential to benefit from the extended 45L tax credits. These modifications, which include a higher per-unit credit, more expansive qualifying requirements, and a longer time frame, represent a major advancement in aiding affordable housing projects. To optimize these advantages, developers must take proactive measures, as the new structure encourages deliberate and early planning.

For more information, connect with our team of experts today.