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What are the Benefits of using 45L?

The use of section 45L has often been made rather sparingly. This is largely down to the lack of information available to people about the tax credits that are available for home builders. Section 45L is a tax incentive given by the federal government to builders of energy-efficient homes. This provision promotes green construction and living and has the potential to be beneficial to investors and housing developers making their property more affordable.

In a Nut Shell

Section 45L is enacted in the Internal Revenue Code and has recently been reauthorized using the Fiscal cliff legislation. The tax credit available to builders is as high as $2,000 per unit. This applies to rental housing units and authorized using the Fiscal cliff legislation. The tax credit available to builders is as high as $2,000 per unit. This applies to rental housing units and owner occupied homes that can meet the energy standards laid down. However, there is the requirement of the unit being occupied by the year 2016 for this section to become applicable and enforceable, and be less than 3 stories high.

The Benefits

There are a number of benefits that home owners and developers of residential homes can get from using the energy efficient section 45L. Some of these benefits are outlined below.

  • Generating extra Bonus to LIHTC Projects

    Typically, the LIHTC projects are capped with the amount of housing credits that they can get. However, extra equity can be generated as a result of this using the section 45L for the limited investment partner as long as the investor is willing to pay for it. Typically it has been seen that extra investment to enhance the energy efficiency of the building will be able to earn 75 to 80 percent tax credit per dollar.

  • A Fruitful Venture for the Developer

    Most building construction is done with the intent of earning a profit on the cost of building it. What if the developer can earn a greater profit? By not only selling the house, but by enjoying tax credit off of it? This can be the case where the owner of the house agrees to let the developer either claim full or partial tax credit for the energy efficiency of the new home or renovated home.

There are plenty of benefits of using section 45L, only some of them were highlighted above. Contact us to learn more