Claiming Legacy §45L Tax Credits Before Time Runs Out

The Legacy §45L tax credit offers developers a unique opportunity to capitalize on energy-efficient residential projects before the new, stricter requirements were necessary. With the old §45L tax credit requirements being phased out, it’s crucial for eligible contractors to act quickly to claim these benefits for projects completed before January 1, 2023. 

Understanding Legacy §45L Tax Credit Certification Requirements

To claim the Legacy §45L tax credit, units must have been initially leased or sold before January 1, 2023. Eligible contractors must secure certification from an independent, authorized certifier accredited by the Residential Energy Services Network (RESNET) or an equivalent rating network. This certifier conducts both computer modeling and on-site testing to check the energy efficiency of the dwelling units. They then compile a comprehensive certification package. Developers will need to amend their taxes to access this Tax credit for past projects. 

Impact of the Inflation Reduction Act

The passing of the Inflation Reduction Act has changed the landscape for several federal benefit programs, including the §45L energy-efficient home tax credits. Starting from 2023, projects must adhere to Energy Star guidelines, which are significantly more stringent and costly. 

Additionally, multifamily buildings must meet prevailing wage and apprenticeship requirements, which can be prohibitive for many developers operating on thin margins. This makes the Legacy §45L tax credit even more valuable, as it provides a financial incentive under the old, less demanding standards.

Steps to Navigate the Legacy 45L Program

  1. Assess Eligibility: Verify that your project meets the Legacy 45L tax credit criteria, specifically being completed and units leased or sold before January 1, 2023. Willingness to amend taxes is an important part of ensuring that the Legacy §45L Tax Credit is right for you. 
  2. Engage a Certifier: Hire an independent certifier accredited by RESNET or an equivalent organization. They will conduct the required computer modeling and on-site testing.
  3. Prepare Documentation: The certifier will compile a comprehensive certification package.
  4. File Timely Tax Returns: Ensure that your tax credit claim is submitted on a timely filed tax return or within the open three-year window for amendments.

Seizing the Opportunity: Act Now to Maximize Benefits

The Legacy 45L tax credit represents a valuable opportunity for developers to gain financial benefits from energy-efficient home construction under the old requirements. With the stricter guidelines of the Inflation Reduction Act now in place, the window to take advantage of the Legacy §45L tax credit is closing fast. 

For residential development projects completed before January 1, 2023, meeting the certification requirements is crucial to earning tax benefits. This involves partnering with eligible engineering firms, like Walker Reid, to perform energy efficiency assessments and prepare the certification package. 

At Walker Reid, we specialize in guiding clients through the complexities of green energy tax incentives to reclaim crucial funds. We are committed to helping clients achieve sustainability goals while maximizing tax benefits. Contact us today to learn how we can help you maximize energy efficiency deductions and credits for your construction projects.