45L Energy Credits are Here to Stay
Section 45L of the Internal Revenue Code is to encourage builders to use energy-efficient materials for the construction of residential and multifamily homes. Eligible properties do not necessarily have to be newly built; properties that have been substantially improved via remodeling or renovations are also eligible. 45L Energy-Efficient Home Tax Credits have been around since 2006 but had expired at the end of 2021.
The Inflation Reduction Act of 2022 extended the 45L credit for homes sold or leased during 2022 with few changes. However, from 2023 through 2032, the Act significantly changes the 45L Energy Efficient Home Credit with new provisions and requirements.
Beginning in 2023, the Act provides an increased 45L tax credit of $2,500 for single family and homes (includes duplexes and townhomes) when constructed according to the standards set by the ENERGY STAR Residential New Construction Program. The Act also provides an even higher 45L tax credit of $5,000 for single family homes when they are certified as a DOE Zero Energy Ready Home (ZERH).
For multifamily homes constructed after 2022, the Act provides a 45L tax credit of $500 when meeting the ENERGY STAR Program or $1,000 when meeting the DOE Zero Energy Ready Home requirements. If prevailing wage requirements are also satisfied, the credit for multifamily homes increases to $2,500 or $5,000, respectively.
Another change to the 45L program is an update for Low-Income Housing Tax Credits (LIHTCs). Any 45L credit amounts claimed no longer reduce the adjusted basis of buildings supported by LIHTCs.
More information can be obtained at the following links:
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