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 - A Lot Has Changed!

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

What Changed Exactly

First, for tax year 2022, nothing changed. Everything stays the same as before. It's still $2,000 for low-rise residential. You can always go back three years and amend your prior year returns and pick up the $2,000 tax credits for units improved in those prior years. if you have not done this, not is the time,

Second, beginning in 2023, the tax credit increased to $2,500 for single family and manufactured homes when constructed according to the standards set by the Energy Star Residential New Construction Program, including Manufactured Homes Program.

New is the the tax credit is available to non-profits. They can designate the person or entity who designed or developed the program that created the qualifications for the tax credits. Find out if you qualify!.

Here's the Nitty Gritty

  • Single-Family New Homes
    • The new tax credit is $2,500 per unit.
      • Requires
        • Is available for ENERGY STAR certified homes.
        • Projects completed between January 1, 2023 – December 31, 2032.
        • Applies to all new builds and renovations.
        • Follows ENERGY STAR requirements: Energy Star New Home National Version 3.1
        • Must pay prevailing wage (what this means has yet to be determined)
        • Any regional program requirements applicable to the your state.
        • Beginning January 1, 2025, the requirements to follow will be the ENERGY STAR Single-Family New Homes National Version 3.2 (or the regional program requirements applicable to the home) 
        • Applies to all manufactured homes.
    • Qualify as DOE Zero Energy Ready, and pay prevailing wage, and the tax credit is $5,000 per unit.

 

  • Multifamily New Construction
    • Meets the ENERGY STAR Multifamily New Construction Building requirements.
    • The tax credit drops to $500 per unit.
    • Pay prevailing and the tax credit increases to $2,500 per unit.
    • Qualify as DOE Zero Energy Ready, and pay prevailing wage, and the tax credit is $5,000 per unit.
    • Applies to ALL residential properties, low-rise and high-rise multifamily.
    • NOTE: Section 42, the Low-income Housing Tax Credits (LIHTC), no longer need adjust their basis.

 

Zero Energy Ready Homes

What is a DOE Zero Energy Ready Home?

A DOE Zero Energy Ready Home is a home that meets all of the criteria found in the DOE Zero Energy Ready Home National Program Requirements.

DOE Zero Energy Ready Homes are verified by a qualified third-party, like Apollo Energies, and are at least 40%-50% more energy efficient than a typical new home.

This generally corresponds to a Home Energy Rating System (HERS) Index Score which are typically in the low to mid-50s, depending on the size of the home and region in which it is built. But a Zero Energy Ready home is set up to accomodate a right-sized solar array, and the conduit is already run for the wiring from the panels to a inverter next to the service panel.

Let us review your plans and right-size your solar array to ensure you reserve enough space on the roof for a solar array, and that the house is using the least amount of enerrgy possible. This way, you'll know you will qualify for the ZER incentives.

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 and using prevailing wage.
    • 100 units at $5,000 per unit equals $500,000 and using prevailing wage, and set 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