Section 45L Tax Credit

What is Section 45L Energy-Efficient Home Credit?

The Section 45L tax credit offers developers a means to offset the costs associated with building energy-efficient single family or multifamily properties.

Inflation Reduction Act of 2022

Now available to non-profits entities. Ask us how.

The Act extended the 45L credit for homes sold or leased during 2022 with little modification. Residences sold or leased in 2022 still qualify for the 45L credit using the 2021 energy efficiency standards. However, from Jan. 1, 2023 through Dec. 31, 2032, the Act significantly changes the 45L Energy Efficient Home Credit with new provisions and requirements.

Here's What Changed

Beginning in 2023, the Act provides an increased credit of $2,500 for single family and manufactured homes when constructed according to the standards set by the Energy Star Residential New Construction Program or the Manufactured Homes Program.

  • Single-Family New Homes
    • $2,500 is available for ENERGY STAR certified homes.
    • January 1, 2023 – December 31, 2024: ENERGY STAR Single-Family New Home National Version 3.1 (or the regional program requirements applicable to the home).
    • For all programs if you pay prevailing wage, your tax crediut umps to $5,000 per unit.
    • January 1, 2025 – December 31, 2032: ENERGY STAR Single-Family New Homes National Version 3.2 (or the regional program requirements applicable to the home) 
    • If prevailing wages are paid, your tax credit jumps to $5,000 per unit.
  • Manufactured Homes
    • $2,500 available for ENERGY STAR certified manufactured homes meeting the most recent ENERGY STAR Manufactured New Homes program requirements (currently Version 2, with Version 2.1 currently proposed to be implemented in May 2023).
    • If prevailing wages are paid, your tax credit jumps to $5,000 per unit.
  • Multifamily
    • $500 per unit is available for ENERGY STAR certified multifamily units meeting the ENERGY STAR Multifamily New Construction National program requirements (or the regional program requirements) applicable to the dwelling unit. A larger tax credit of $1,000 is available for multifamily projects that meet prevailing wage requirements.
    • If prevailing wage is paid, the tax credits ENERGY STAR certified multifamily units is $2,500.
    • If prevailing wages are paid, your tax credit jumps to $5,000 per unit.
    • Section 42 Low-income Housing Tax Credits (LIHTC).
      • Projects are not required to take the 45L tax credit into account when computing the adjusted basis of buildings subject to LIHTC credits.
  • Zero Energy Ready Homes
    • Build any single-family or multifamily homes to meet DOE Zero Energy Ready home.
    • Earn $5,000 tax credits per dwelling unit.

Who can benefit from 45L Tax Credits?

  • Homebuilders, e.g., single-family developers, anyone who buys and sells or lrases homes.
  • Multifamily Developers, property owners
  • Real Estate Investors who want to improve their property values
  • Investors looking to improve their ESG reporting

Examples

  • For Tax years 2018-2022
    • 100 units at $2,000 per unit equals $200,000.
    • 200 units at $2,000 per unit equals $400,000.
  • Beginning January 1, 2023 through December 31 2032
    • 100 units at $2,500 per unit equals $250,000.
    • 100 units at $5,000 per unit equals $500,000 for Zero Energy Ready Home.

This credit provides a dollar-for-dollar offset against taxes owed or paid in last three years on property sold or leased.

In the year you install the energy efficiency upgrades, taxpayers can claim the Section 45L tax credit in that year. You can also go back three years from your last timely filed tax return to claim the tax credit by amending those other returns. Unused credits can be carried back one year and forward 20 years.

What types of buildings qualify for 45L Tax Credits?

Our multi-disciplinary team of engineers and tax experts will ensure that you obtain the maximum tax credits and provide all the documentation necessary to sustain an IRS audit. We use IRS approved software programs for the IRC Sec. 45L certification.

When it comes to funding your upgrades, you have several options. You can support it yourself with a check.  You can borrow the money using traditional financing.  You can use Property Assessed Clean Energy (PACE) You can use a power purchase agreement.  We created the UmbrellaPPA­™  for when you don't have the funds available to pay for the upgrades, the solar and storage system, but will when you recognize your ROI. 

Check our Frequently Asked Questions for more detail on these credits

Contact us to Learn More

More About Section 45L Tax Credits

What is the Process for Claiming the 45L Tax Credit?

A detailed energy analysis will be the basis for developing and supporting your 45L tax credit claim. It must be certified by a qualified third-party.

Qualifying Project Characteristics

  • Project must be three stories or less above ground (not including below-grade parking) and three habitable stories above ground in California.
  • Project must be built on the territory of the United States.
  • Project must meet construction standards based on those set by the 2006 International Energy Conservation Code (IECC).
  • Project must be completed or acquired after December 31, 2016.
  • Construction can include “substantial” rehabilitation and reconstruction.

Common Misconceptions

The owner of the property wanting the tax credit must have a HERS rating.

False. The owner needs to hire a third-party certifier who is qualified to use the performance measurement methods approved by RESNET (or the equivalent rating network). You do not have to hire a professional engineer or a HERS rater or a Certified Energy Manager but may choose to do so.

The approved software always produces accurate results.

Yes and no. Knowing the building science can achieve efficiency with the appropriate analysis. When you know how a building operates from an energy efficiency standpoint, you know what the results should be based on the measurements you took and how the building behaves. The software allows you to capture these energy effects in the calculations. If you do not know what to capture, the software will fail a structure.

My accountant knows taxes so he’s all over this.

A huge misconception is that your accountant is automatically handling this particular credit because they know taxes. Rarely have we found an accountant actively taking advantage of this tax credit—more likely the accountant has only heard of it. That’s where we come in. We can help you claim this tax credit and work with your accountant so you get the best return.