The 45L tax credit encourages developers, buildings, and contractors to implement energy-efficient systems in the construction of residential buildings. While most properties that qualify for the 45L tax credit are new construction, significant reconstruction or rehabilitation projects can also qualify. The Inflation Reduction Act revived this expired credit, allowing taxpayers to claim up to $5,000 per unit beginning in 2023. We’ve outlined below the requirements and documentation needed for taxpayers to take advantage of this valuable incentive.
Residential Properties Acquired in 2022 or Prior
- Eligible Properties: Residential dwelling units that are three stories or less. Examples include single-family homes, duplexes, apartments, and senior living facilities. To qualify, residential properties must be leased or sold to an end residential user.
- Energy Savings Requirements: The residential property must comply with the 2006 International Energy Conservation Code. A 50% reduction in energy usage must be achieved when comparing a single or multi-family residential unit to the baseline standards of the 2006 IECC. For manufactured homes, this is reduced to 30%. Of the savings, at least 10% must be attributed to the performance of the building envelope.
- Certification Requirements: The certification for the energy analysis must be provided by a qualified third-party individual who is RESNET certified (or an equivalent rating network).
- Credit Amount: All eligible dwelling units certified for meeting the energy savings requirements are eligible for a $2,000 credit.
Residential Properties Acquired in 2023 and Future
- Eligible Properties: Residential dwelling units, similar to 2022. The Inflation Reduction Act removed the three-story or less height requirement, making high-rise residential buildings eligible.
- Energy Savings Requirements: The energy savings requirements were significantly reconstructed and now include a base requirement (Energy Star) and optional enhanced requirement (ZERH).
Energy Star Single-Family Home Requirements
- Properties acquired in 2023 and 2024: Energy Star Single-Family New Homes National Program Requirements 3.1.
- Properties acquired after 2024: The standard will be upgraded to version 3.2.
- All Properties: Local Energy Star Single-Family Program Requirements applicable to the location of the dwelling.
- Manufactured Homes: The most recent Energy Star Manufactured Home National program requirements.
Energy Star Multi-Family Home Requirements
- All Properties: The most recent Energy Star Multi-Family New Construction National Program Requirements and Regional Program Requirements applicable to the location of the dwelling.
- The most recent version of the requirements is determined by the date the dwelling was acquired.
Zero Energy Ready Home (ZERH) Program
- All Properties: Energy Star Certification as outlined above.
- All Properties: Additional technical requirements are outlined in the program.
- Only properties five stories or less are eligible to qualify for ZERH.
- Certification Requirements: A third-party certification from an Energy Rater, certified by ANSI/RESNET/ICC Standard 301 (or equivalent).
- Credit Amount: The credit amount is determined by the standard met (Energy Star or ZERH). In the case of multi-family units, a higher credit can be obtained for meeting prevailing wage and apprenticeship (PW&A) requirements.
- Single Family:
- Energy Star: $2,500
- ZERH: $5,000
- Energy Star: $500 (PW&A = $2,500)
- ZERH: $1,000 (PW&A = $5,000)
What is Needed to Claim the 45L Tax Credit?
Due to the complexity of this credit, a 45L expert should be implemented early in the design/construction of the property. Having an expert ensures the requirements are met and properly documented, and the certification can be obtained. The credit will be input on IRS Form 8908 and attached to the corresponding tax return.
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