The 45L Energy-Efficient Home Tax Credit is a valuable cost-savings tool that provides builders, homeowners and developers with tax credits for residential and apartment buildings. The tax credit was retroactively extended in late 2019 for 2018 and 2019 through the end of 2020. Any unused credits can be carried over for up to 20 years. Engineered Tax Services is providing answers to the questions we most often hear from our clients and partners.
What is the 45L Tax Credit?
The 45L tax credit for energy-efficient homes provides $2,000 per unit for owner-occupied or rental dwelling buildings that meet certain conditions.
Which Structures Qualify?
Properties, which must be three stories or lower, must incorporate energy-efficient features such as high R-value insulation and roofing, HVAC systems and/or windows and doors. The property must have been built between August 5, 2005 and December 21, 2020.
Who Can Claim the 45L Tax Credit?
Qualified contractors can claim the 45L tax credit. This includes the builder, homeowner or developer. If a homeowner has hired the contractor to make energy-efficient improvements, it is the owner rather than the contractor who can take the credit. To qualify, a home must be sold, rented or leased.
What Are the Specific Requirements for the 45L Tax Credit?
A dwelling unit must provide a level of heating and cooling energy consumption that is significantly less than certain national energy standards, and the percentage varies depending on whether the unit is leased or owned. Generally speaking, the standards include:
- Single-family home and multifamily dwelling unit: Must consume 50% less energy to offer the same HVAC functions as any identical non-energy-efficient residence.
- Building envelope must account for one-fifth the improvement
- New construction examples include:
- Wall insulation must be R-19 or better in the Deep South
- Quality windows: At a bare minimum, ENERGY STAR; U-values in the North and solar heat gain coefficients (SHGC) in the South
- Rehab requirements include:
- R-19 or better in wall insulation other than the Deep South
- Rigid foam board or insulated sheathing is beneficial
- For HVAC equipment, if walls can’t be insulated to T-19, the HVAC efficiency must be at least SEER 14 for air conditioning and 95%
What Is the Process for Claiming the 45L Tax Credit?
The process for claiming the 45L credit includes a detailed energy analysis that must be certified by a qualified, unrelated third party and certified by an engineer. Developers and builders should work with licensed engineers, who will provide 45L certifications that are evaluated, modeled and approved. Once the certification is complete you will receive a certification package with all necessary documentation and certifications to sustain the tax credit in the case of IRS audit.
Keep in mind that you can claim the 45L tax credit retroactively; however, you can only claim the credit for properties that have been built or remodeled in the past three years. Contractors must obtain certification from a licensed professional that is an unrelated, third party to the project.
ETS can provide a complimentary pre-qualification review of your property to determine if the units will pass the energy requirements. If they do not, then guidance will be provided for the least costly upgrades to help the units pass.
To learn more about how ETS is helping clients take advantage of valuable energy-based tax benefits like the 45L tax deduction, or to request detailed information, contact us at 800.236.6519 or visit our 45L Tax Credit page for more information.