Section 45L Tax Credit
What is Section 45L Energy-Efficient Home Credit?
The Section 45L tax credit is a credit that offers developers a means to offset the costs associated with building energy-efficient single family or multifamily properties. This credit provides a dollar-for-dollar offset against taxes owed or paid in last three years on property sold or leased.
Who can benefit from 45L Tax Credits?
- Homebuilders, e.g., developers, flippers
- Multifamily Developers
- Real Estate Investors
- Investors looking to improve their ESG reporting
- 100 units at $2,000 per unit equals $200,000
- 200 units at $2,000 per unit equals $400,000.
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. Unused credits can be carried back one year and forward 20 years.
What types of buildings qualify for 45L Tax Credits?
- Low-rise residential homes
- Affordable housing (LIHTC)
- Apartment buildings
- Assisted living facilities
- Student housing
- Both substantial reconstruction and rehabilitation projects
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.
Check our Frequently Asked Questions for more detail on these credits
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.
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.