Section 45L Tax Credit Case Study

The federal Energy Efficient New Homes Tax Credit (“45L”) applies to single-family and multifamily dwelling units.

Pre-Inflation Reduction Act

Click here for what the Inflation Reduction Act provides.

The tax credit applies to all properties that were built or renovated after December 31, 2018, and before January 1, 2022.

The tax credit applies to single-family and low-rise multifamily, e.g. three stories or less, and either sold or leased as a primary residence.

You can go back three years from your last timely filed tax return and acquire these credits.

The criteria are to improve the energy use of the dwelling unit and make it 50% better than it would have been if built or renovated back in 2006.

The tax credit is $2,000 per unit.

You’re looking for:

  • More efficient heating and cooling systems,
  • Better windows,
  • LED lighting,
  • Air sealing,
  • Water heaters,
  • Wall and attic insulation.

These are all energy conservation measures we all know to do. However, to obtain the energy savings you need, you will need to know when and in what order to install these energy efficiency measures.

Did you know your heating and air conditioning system needs to run for 15 minutes to reach its steady state? That is the point in time when your system is running at it's optimal efficiency.

But what happens when the system only runs for 8 minutes?  What’s the operating efficiency, then? Let's do the math.

  • Take your 8-minute run-time and divide it by the 15 minutes it should run (8 ÷ 15), which equals 53%.
  • Now multiply 53% by the efficiency of the system you have. If it's an 80% efficient furnace system, your furnace runs at 42% of its efficiency rating (53% x 80%). The same applies to the your air conditioner.
  • What happens if you install the same size system that is 96% efficient? Have you saved anything and increased your efficiency? No. That 96% efficient system is now running at 51% of its efficiency rating (53% ÷ 96%).

So why do we install HVAC systems that operate for only 8 minutes when they should operate for 15 minutes? Airflow. For you and I to feel comfortable in the room, we need to average about 4.5 air changes per hour (ACH). But we have been building our homes and offices in such a way to allow for too many air changes per hour.

Knowing the building science behind energy use and how that affects the software's energy model can mean the difference between a property passing and a property failing to pass the criteria for qualifying for the tax credits.

When looking for someone to qualify your property for the 45L tax credits, ensure the people you select understand the science behind energy efficiency. They should be telling you what we just did here.

Better yet, ask us for assistence.