Maximize Your Energy Efficiency Savings with the 45L Tax Credit

Per the IRS, only the “eligible contractor” can claim this tax credit. This person is usually the developer, builder or homeowner. They must own and have a basis in the property at the time of its construction or improvement.

Yes. The 45L credit may be claimed retroactively for qualifying properties that were built or remodeled any time within the past three open tax years.

Pre-2023: Residential dwellings that surpass the 2006 IECC standards of energy efficiency are eligible for the 45L tax credit. The IRS defines a residential dwelling as a housing unit that has been designed for occupancy with one or more rooms, including a kitchen, a living room and a chamber for sleeping. The dwelling can be either a primary residence or a vacation home. Both single-family and multifamily properties can qualify, but it is important to note that the building must be no taller than three stories.

2023 and Later: Residential and mixed-use buildings are both eligible, but dwelling units and common spaces (excluding parking garages) must exceed 50% of the building’s square footage for mixed-use properties. The property can be multifamily or single-family, and there are no height requirements. The building must meet either ENERGY STAR or Zero Energy Ready Home (ZERH) energy-savings requirements.

Yes. Section 45L considers any property that has undergone substantial rehabilitation to be new construction. In addition to newly built homes, renovation or remodeling projects may also qualify for the 45L tax credit.

Pre-2023: A qualifying single-family home or multi-family property must consume 50% less heating and cooling energy than a comparable structure built in accordance with 2006 IECC standards. The building envelope itself (insulation, windows, doors, roof, foundation, etc.) must account for at least one-fifth of the energy-saving improvements.

2023 and Later: Buildings must meet either ENERGY STAR or Zero Energy Ready Home (ZERH) standards and be certified by an IRS-approved entity. To obtain ENERGY STAR certification, the building must perform better than at least 75% of similar buildings.

The eligible contractor (usually the developer, builder or homeowner) must obtain certification from an accredited, IRS-approved independent certifier. The independent certifier will conduct on-site verifications and computer modeling to create a certification package, which can then be used to file for the 45L tax credit.

No. Authorized and eligible certifiers are not permitted to check their own units. Eligible certifiers are likewise not allowed to check units belonging to family members. You must hire an independent third party (who has been properly accredited) to evaluate the property.

If you want to be eligible for the 45L tax credit, consider implementing:

• Double- or triple-pane window glass
• A hydronic heating system
• Reflective roofing
• An HVAC unit with a SEER rating of 13 or higher
• Exterior doors with extra insulation
• Insulation with high R-values
• A gas furnace system that runs at 80% efficiency or higher
• Additional foundation insulation
• Low-E vinyl windows
• Structural insulated panels

No. As long as your buildings meet all requirements, you can claim 45L tax credits for as many units as you own.

Yes. Unused 45L tax credits may be carried forward up to 20 years.

Eligible contractors may request a tax credit of up to $2,000 or $5,000 (depending on the circumstances) for energy-efficient residential dwellings that are either newly built or substantially renovated.

In order to claim the 45L tax credit, you must own and have a basis in a certified energy-efficient residential building during its construction. Individuals, trusts, estates, partnerships, associations, companies and corporations may claim the 45L credit on qualifying properties.

Pre-2023: Yes. Any deduction amount claimed under 45L will reduce the basis of buildings supported by Section 42 Low-Income Housing Tax Credits (LIHTCs).

2023 and Later: No. 45L credit amounts no longer reduce the adjusted basis of LIHTC-supported buildings.

Pre-2023: No. In order to be eligible for 179D, residential buildings must be at least four stories tall. To be eligible for 45L, residential buildings must be under three stories tall. It is not possible for a residential building to meet both of these height requirements at once.

2023 and Later: Yes. Because the 2023 update removes height restrictions for 45L, it is now possible to claim both 45L and 179D on residential buildings of four or more stories.

Pre-2023: 45L does not have prevailing wage provisions for tax years prior to 2023.

No. There are no apprenticeship requirements or provisions for the 45L energy-efficient tax credit.

After undergoing a detailed energy analysis, eligible contractors should use IRS Form 8908 to claim a credit for each certified energy-efficient home first sold or leased during the tax year.

ETS can provide a complimentary engineering and tax analysis to determine if this benefit can be applied to your property. If so, we can provide all required certifications for you to claim the benefit in accordance with IRS regulations.

ETS works with CPA firms and business owners to coordinate energy analysis for the 45L tax credit. We offer in-house engineering capabilities and tax expertise to help you apply and qualify for this valuable tax credit.