FAQ: 45L Energy Tax Credits

The qualified contractor is the only person who can claim this tax credit. They are usually the developer, builder, or the homeowner of the building.  For example, if someone owns a home but hires a contractor to handle building or upgrading the home, the owner is the person who can benefit from this tax. But to qualify for the 45L tax credit, the home must be sold, leased, or rented.

Yes. Because of the Tax Increase Prevention Act of 2014, you can claim the credit retroactively. You can only claim the credit for properties built or remodeled in the past three years.

Both single family and multi-family dwellings that are three stories or less above grade; they must have a higher energy efficiency level than the 2006 IECC standards. Along with single family homes, other dwellings are eligible for the 45L tax credit like apartment buildings, townhouses, student housing, condominiums, and assisted living facilities. The housing must be designed for occupancy with one or more rooms, including a kitchen, a living room, and a chamber for sleeping.

Yes. Since Section 45L defines “new construction” as including any “substantial rehabilitation,” renovation or upgrading projects qualify as well as brand new construction.

For single family homes and multi-family dwelling units, the unit must consume a minimum of 50% less energy to offer the same heating and cooling functions as any identical non-energy efficient residence. The building envelope itself must account for one-fifth of this improvement; it must deliver a 10% reduction in energy use for heating and cooling, the same as any identical non-energy efficient dwelling.

The contractor must obtain certification from an independent certifier who must be accredited or authorized by a rating network like the Residential Energy Services Network (RESNET) and approved by the IRS. After doing onsite testing and computer modeling to create and deliver a certification package, the certifier will declare, under penalty of perjury, that all facts are correct and that the home respects the energy standards. This certification package gives the applicant everything they need to file for the 45L tax credit.

No. Even if you’re authorized and an eligible certifier, you can’t check your own units, and neither can anyone related to you. You must hire another expert to verify any home or building you plan to claim the 45L tax credit for.

Here are some of the materials or supplies you could use or implement if you want to be eligible for the 45L tax credit:

• double-pane or triple-pane window glass to offer isolation and protection;
• hydronic heat system to reduce energy usage; getting hydronic panels can and should blend seamlessly into the architectural design of your home.
• reflective roofing to prevent heat loss;
• HVAC units with a rating of SEER 13+ to avoid high energy usage;
• exterior doors with extra insulation to help maintain the interior temperature;
• R-38+ roof insulation;
• R-13 – R-19+ wall insulation;
• 80+ percent efficiency furnace systems (gas);
• foundations/slabs with extra insulation;
• windows that are vinyl and rated Low E;
• passive solar design to use natural energy;
• structural insulated panels;
• vacuum insulation panels;

No. Whether you have just a single family home and want to obtain $2,000 or if you own 500 units and can claim $1,000,000, it makes no difference, as long as your buildings meet the required qualifications.

Yes, the unused credit can be carried forward up to 20 years.

No. While some energy-efficient building materials might cost more, the financial incentives of the tax credit and the increased equity and lower utility costs for the occupants are worth it in the long term. The tax credit encourages builders to use energy efficient materials.

Under the provisions of the 45L tax credit, eligible contractors may request up to a $2,000 credit for new energy-efficient systems and installations in units leased or sold in what is currently an open tax year through December 31, 2021. You can claim the 45L tax credit be retroactively for all residential and apartment buildings completed within the open tax years (usually 3-4 prior years for most taxpayers), and any unused credit may be carried forward for up to 20 years.

To claim the 45L tax credit, the property must meet the following criteria:

• Units, homes leased up or sold in an open tax year (generally the last 3 years)
• Can be no more than three stories above grade
• For single- and multi-family dwelling units, the unit must consume a minimum 50% less energy to offer the same heating and cooling functions as any identical non-energy-efficient residence.
• Manufactured homes must reduce energy usage by at least 30%.
• 10% of the energy efficiency must be derived from the building envelope.
• Properties that undergo major rehabilitation and new construction can qualify for the 45L tax credit if they pass the energy audit and get certified as energy efficient.

• To qualify as an eligible contractor with respect to the home, the person must own and have a basis in the qualified energy-efficient home during its construction. 
• A “person” can be an individual, a trust, an estate, a partnership, an association, a company, or a corporation.
• In addition to single-family homes, other dwellings like apartment buildings, townhouses, student housing, condominiums and assisted living facilities are eligible for the 45L tax credit.
• The qualified contractor – typically the developer, builder or homeowner – is the only person who can claim the 45L tax credit, and they must own the unit at the time of construction or improvement.

Eligible contractors use Form 8908 to claim a credit for each qualified energy efficient home sold during the year. The first step toward applying for the 45L credit is a detailed energy analysis, which must be certified and documented by a third-party licensed professional.  To see if they qualify for the 45L tax credit, homeowners should also acquire an energy efficiency overview of their current energy consumption before having a tax credit analysis.  Although this tax incentive has been in place for over a decade, few taxpayers take advantage of the benefit.  ETS will provide a complimentary engineering and tax analysis to determine if this benefit can apply to your property. If it foes, we can provide the required certifications and other assistance so you can claim the benefit in accordance with IRS regulations.  

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