Requirements to Claim the 45L Home Energy-Efficient 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. 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 qualified contractor, who can be the builder, homeowner or developer, can claim this valuable tax credit. In the case of a homeowner who has hired the contractor to make energy-efficient improvements, it is the owner rather than the contractor who can take the credit. Overall, homebuilders and multifamily developers can benefit from the credit.

Aside from who can take the credit, the following information provides useful information about what is required to claim the 45L tax credit.

Exceeding National Energy Standards

A dwelling unit must provide a level of heating and cooling energy consumption that is significantly less than certain national energy standards. This varies depending on whether the unit is owned versus leased. As a general rule:

  • A 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
  • The building envelope must account for one-fifth of this improvement
  • Examples of new construction requirements include:
    Wall Insulation. R-19 or better for dwellings outside the Deep South.
    Quality Windows. ENERGY STAR windows are a bare minimum. U-values are important in northern states and solar heat gain coefficients (SHGC) are better in the South.
  • Examples of requirements for rehabs include:
    Wall Insulation. R-19 or better for dwellings outside the Deep South. Rigid foam board or insulated sheathing is also beneficial.
    HVAC Equipment. If constraints don’t allow exterior walls to be insulated to R-19, then the efficiency of the HVAC equipment is vital. At least SEER 14 for A/Cs and 95% AFUE for heating is recommended.

The process for claiming the 45L credit includes a detailed energy analysis that must be certified by a qualified third-party engineer.

Claiming the Credit

You can claim the 45L tax credit retroactively, although 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.

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.

Engineered Tax Services focuses on helping clients qualify for specialty tax services, including the 45L tax credit. Our team of professional engineers and tax experts will work with you to identify and claim the credits for which you qualify.

 

ETS will also 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 to 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.

Author

Heidi Henderson

Heidi Henderson

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