In addition to being better for the environment, energy-efficient homes often lead to cost savings down the line for the owners or renters who inhabit the building. In addition to helping the surroundings, there is another significant but often overlooked financial incentive to energy efficient building through the 45L tax credit. This tax credit consists in $2000 per unit for owner-occupied or rental dwelling buildings that meet certain energy-saving standards.
Who is eligible for the 45L tax credit?
The qualified contractor is the only person who can claim this tax credit. He is 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. However, to qualify for the 45L tax credit, the home must be sold, leased, or rented.
Can I apply for this tax credit for past properties I’ve built?
Yes. Thanks to the Tax Increase Prevention Act of 2014, you can claim the credit retroactively. You can only claim the credit for properties that have been built or remodeled in the past three years.
What kinds of properties are eligible for this tax credit?
Both single family and multi-family dwellings that are three stories or less above grade and have a higher energy efficiency level than the 2006 IECC standards. 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 housing must be designed for occupancy with one or more rooms including a kitchen, a living room, and a chamber for sleeping.
Can remodeling projects qualify?
Yes. Section 45L defines “new construction” as including any “substantial rehabilitation,” so renovation or upgrading projects qualify as well as brand new construction.
Specifically, what kind of energy standards are necessary to be eligible?
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 and deliver a 10% reduction in energy use for heating and cooling as any identical non-energy efficient dwelling.
What is the process to file for the 45L tax credit?
The contractor must obtain certification from an independent certifier that must be accredited or authorized by a rating network like the Residential Energy Services Network (RESNET) and approved by the IRS. The certifier will do on-site 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 he needs to file for the 45L tax credit.
Can I be the one to certify or verify my property for the 45L tax credit?
No. Even if you are authorized and are an eligible certifier, you cannot check your 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.
What kinds of energy efficient upgrades would qualify a dwelling?
Some of the materials or supplies that could be used or implemented if you want to be eligible for the 45L tax credit are:
- double-pane or triple-pane window glass to offer isolation and protection;
- hydronic heat system to reduce energy usage;
- 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;
Is there a maximum number of units I can claim the credit for?
No. Whether you have just a single family home and want to obtain $2000 or 500 units and can claim $1,000,000 makes no difference as long as the buildings meet the required qualifications.
Does the 45L tax credit carry forward?
Yes, the unused credit can be carried forward up to 20 years.
Is there any downside to claiming the 45L tax credit?
No. While some energy-efficient building materials might cost more, the financial incentives of the tax credit plus the increased equity and lower utility costs for the occupants are worth it in the long term. The tax credit aims to encourage builders to use energy efficient materials.
How can Walker Reid Strategies help
Our full-service team of experts can both help you determine if you qualify for the tax credit and help you fill out the paperwork. Our engineers can do the necessary on-site testing and computer modeling to help you apply, and Our CPAs can handle the necessary paperwork for you.