Get clarification on 45L tax credits

In addition to being better for the environment, energy-efficient homes lead to lower-cost ownership and higher property values. For the owners, this means more attractive properties, and more comfortable homes for the renters who inhabit the building.

Furthermore, there are significant but often overlooked financial incentive to the energy-efficient building when looking at the 45L tax credit. This tax credit consists of $2,000 per unit for owner when sold or rental leased, after meeting certain energy-saving standards.

Who is eligible for the 45L tax credit?

The qualified contractor is the only person who can claim this tax credit. They are usually the the owner of the building. For example, if someone owns property and hires a contractor to building the home, the owner is the person who benefits from this tax. If the home already exist, again, if the owner hires a contractor to renovate the home, the owner is the person who benefits from this tax.  However, to qualify for the 45L tax credit, the home must be sold, leased, or rented.

Can I apply for this tax credit for past properties I’ve built?

Yes. Thanks to the Tax Increase Prevention Act of 2014, you can claim the credit retroactively. You can only claim the credit for properties that have been built or remodeled in the past three years.

What kinds of properties are eligible for this tax credit?

Both single-family and multi-family dwellings are three stories or less above grade and have a higher energy efficiency level than the 2006 IECC standards. In addition to single-family homes, other dwellings like apartment buildings, townhouses, student housing, condominiums, and assisted living facilities are eligible for the 45L tax credit. The housing must be designed for occupancy with one or more rooms including a kitchen, a living room, and sleeping.

Can remodeling projects qualify?

Yes. Section 45L defines “new construction” as including any “substantial rehabilitation,” so renovation or upgrading projects qualify as well as brand new construction.

Specifically, what kind of energy standards are necessary to be eligible?

For single-family homes and multi-family dwelling units, the unit must consume a minimum of 50% less energy to offer the same heating and cooling functions as any identical non-energy efficient residence. The building envelope itself must account for one-fifth of this improvement and deliver a 10% reduction in energy use for heating and cooling as any identical non-energy efficient dwelling.

What is the process to file for the 45L tax credit?

The contractor must obtain certification from an independent certifier. That certifier must be authorized by a rating network like the Residential Energy Services Network (RESNET), or an equivalent, to use energy performance measurement methods and approved by the IRS to use the forum. The certifier will do on-site testing and computer modeling to create and deliver a certification package. The certifier will declare under penalty of perjury that all facts are correct and that the home qualifies pursuant to the energy standards. This certification package gives the applicant everything he needs to file for the 45L tax credit.

Can I be the one to certify or verify my property for the 45L tax credit?

No. Even if you are authorized and are an eligible certifier, you cannot check your units, and neither can anyone related to you. You must hire another expert to verify any home or building you plan to claim the 45L tax credit for.

What kinds of energy-efficient upgrades would qualify a dwelling?

Some of the materials or supplies that could be used or implemented if you want to be eligible for the 45L tax credit are:

  • double-pane or triple-pane window glass to offer isolation and protection;
  • hydronic heat system to reduce energy usage;
  • getting hydronic panels can and should blend seamlessly into the architectural design of your home.
  • reflective roofing to prevent heat loss;
  • HVAC units with a rating of SEER 14+ to avoid high energy usage;
  • exterior doors with extra insulation to help maintain the interior temperature;
  • R-38+ roof insulation;
  • R-13 – R-19+ wall insulation;
  • 90+ percent efficiency furnace systems (gas);
  • foundations/slabs with extra insulation;
  • windows that are vinyl and rated Low E;
  • passive solar design to use natural energy;
  • structural insulated panels;
  • vacuum insulation panels;

Is there a maximum number of units I can claim the credit for?

No. Whether you have just a single-family home and want to obtain $2000 or 500 units and can claim $1,000,000 makes no difference as long as the buildings meet the required qualifications.

Does the 45L tax credit carry forward?

Yes, the unused credit can be carried forward up to 20 years.

Is there any downside to claiming the 45L tax credit?

No. While some energy-efficient building materials might cost more, the financial incentives of the tax credit plus the increased equity and lower utility costs for the occupants are worth it in the long term. The tax credit aims to encourage builders to use energy-efficient materials.

How Apollo Energies can help

Our team of experts can both help you determine if you qualify for the tax credit and work with your financial advisor. Our engineers can do the necessary on-site testing and computer modeling to help you apply for the tax credit.

We can help where others have failed. Why?  Because many don’t understand the law, and misinterpret what is says.  These will fail a property that should have qualified.  That’s just based on a misunderstanding on the applicability of the law and the software.

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