Construction workers active on a project building site for 45L tax credits

45L tax credit – Energy Efficient Home Credit for developers

The energy efficient home credit (the 45L credit), which provides eligible contractors up to a $5,000 tax credit for each energy efficient dwelling unit, is retroactively available for projects placed in service from 2020 to 2022, and through the end of 2032. Read on for eligibility requirements and then submit a 45L qualification form to see if your project is a good fit.

Benefits of the energy efficient home credit

The 45L credit can have substantial value, as demonstrated by these case studies:

Case study A

Three-story, 83-unit, multi-family project, fully leased in the eligible year. In this project, 100 percent of the units qualified for the credit.

Tax credit ($5,000 x 83 units) - $415,000

Project certification fee ($400 x 83 units) - $33,200

Net benefit - $381,800

Case study B

Four-story, 106-unit, multi-family project, fully leased in the eligible year but first level was below grade parking. In this project, 90 of 106 units (or 85 percent) qualified.

Tax credit ($5,000 x 90 units)- $450,000

Project certification fee ($400 x 90 units) - $36,000

Net benefit - $414,000

Project characteristics

  • Must be three stories above grade or less (not including below-grade parking)
  • Some energy efficient features*, such as: wall insulation R-13 thru R-19+, roof insulation R-38+, double/triple pane windows, vinyl low E windows, insulated exterior doors, reflective roofing materials, extra insulated foundations and slabs, air conditioning with SEER ratings 13+, 80 percent + efficiency gas furnaces, or hydronic heating systems.

Certification requirements

An eligible contractor must obtain certification from an eligible certifier before claiming the energy efficient home credit with respect to the dwelling unit. An eligible certifier is a person not related to the eligible contractor that has been accredited or otherwise authorized by the Residential Energy Services Network (RESNET) or an equivalent rating network. The certifier conducts computer modeling and on-site testing and prepares a certification package with declaration that under penalties of perjury the certifier believes that the facts presented in the certification are true, correct and complete. The fee for certification is typically charged on a per unit basis.

Who is the eligible contractor?

The 45L credit is available to an eligible contractor in the year the certified dwelling units are leased or sold. Previously, there was some confusion as to who qualifies as the eligible contractor with respect to the home. For purposes of 45L, a person must own and have basis in the qualified energy efficient home during the construction to qualify as the eligible contractor with respect to the home. For example, if a person hires a third party contractor to construct the home owns and has basis in the home during its construction, the person that hires the third party contractor is the eligible contractor and the third party contractor is not the eligible contractor.

Taxpayer considerations

  • Typically works best in a 9 percent low-income housing tax credit transaction with excess eligible basis
  • The 45L credit is a IRC Section 38 business credit
  • General business credits generally are not allowable as a credit to offset Alternative Minimum Tax (AMT)
  • The 45L credit reduces the taxpayer's depreciable basis
  • The credit is claimed on the tax return for the year the dwelling units are leased or sold

Think you have a project eligible for 45L? Submit a project qualification form to find out

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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