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Claiming Energy Efficient Tax Credits – Section 45L

The Inflation Reduction Act, passed in August 2022, made several changes designed to help fight inflation. The primary provisions of the legislation includes measures to reduce prescription drug costs, upgrade the energy infrastructure, and provides significant federal funding available to for climate efforts.  As part of the changes, the Section 45L (Energy Efficient Home Tax Credit) was amended to make it easier for home developers and construction companies to benefit. This includes a $5,000 per qualified home single family and manufactured homes and $1,000 for dwelling units eligible to participate in various Energy Star programs. There is also a $500 credit available. To help clients, prospects, and others, Whipplewood CPAs has provided a summary of the key details below.

Builder Eligibility

To be eligible, a contractor must construct a new, or substantially reconstruct a qualified new energy efficient home. The home must be owned by the contractor and have a basis in it during construction. In addition, it must be sold or leased to an individual or family to use as a primary residence. Only those classified as single family (including manufactured homes) or multifamily homes can qualify. Finally, each project must comply with relevant energy savings requirements based on type and acquisition date.

Enhanced Credit Amounts

A $5,000 credit for manufactured and single-family homes is available for units that are both eligible for the Energy Star program and are certified by the Zero Energy Ready Home Program. For multifamily homes, builders also need to meet prevailing wage requirements to be qualified.

A $2,500 credit is available for single-family, manufactured, and multifamily units that aren’t certified under the Zero Energy Ready Home Program, but meet the necessary Energy Star requirements:

  • Energy Star Residential New Construction Program for single-family homes.
  • Energy Star Manufactured New Homes Program for manufactured homes.
  • Energy Star Multi-Family New Construction Program for multifamily homes. Multifamily new construction projects that don’t meet the prevailing wage requirements can receive a $500-1,000 credit for each home leased or sold after 2022. For multifamily homes that are Zero Energy Ready Home certified, the credit is $1,000 per unit.

Homes sold or leased before 2023 are eligible for a $2,000 credit if it meets the 50% energy efficient standard. This means homes should have heating and cooling energy consumption that’s at least 50% below the average annual level of energy consumption for a unit of a comparable size. This value needs to be certified, and 1/5 of the 50% consumption reduction needs to come from building envelope components.

Manufactured homes can also qualify under this if they meet Federal Manufactured Home Construction and Safety Standards (FMHCSS) requirements. A $1,000 credit is also available for homes sold or leased before 2023 that meet the standard of reducing energy consumption by 30% instead of 50%.

Contact Us

The changes to the 45L tax credit provide a robust savings opportunity for Denver home developers and construction companies. Since the changes do not sunset until 2033, there is ample time to claim the savings. If you have questions about the information outlined above, or need assistance with a tax or accounting issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.