Make The Most of Your Savings With The Section 45L Tax Credit: The Handbook

Enhancing Cost Savings via Sustainability and ESG Practices.

Discover your eligibility for the 45L Energy Efficiency Tax Credit

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        Potential Tax Credit:

        £ 00,000.00*

        What is the 45L Tax Credit and who can Benefit From it?

        The 45L Tax Credit is a federal incentive designed to promote energy efficiency in residential buildings. It offers tax credits to eligible builders, developers, and contractors who construct or renovate energy-efficient homes and multifamily properties.

        What types of residential buildings qualify for the 45L Tax Credit?

        Qualifying residential buildings built before 2023 include newly constructed single-family homes, townhouses, and low-rise apartment buildings up to three stories. Any residential building constructed in 2023 or later that receives the required certifications can qualify for the tax credit.

        What energy standards qualify a residential building for the 45L tax credit?

        To qualify for the 45L tax credit from 2023 onwards requires the building/dwelling units receive Energy Star or Zero Energy Ready Homes certification. To receive the certification, a HERS rater who is also an Energy Star Rater, must build an energy model showing the building meets program requirements. They must also perform, at minimum, a pre-drywall and final test out inspection to verify adherence to program specifications.

        What Energy-Efficient Features are Necessary to Qualify for the 45L Tax Credit?

        • 1

          Residential buildings must meet certain energy-efficient criteria, including improvements in insulation, windows, doors, heating, cooling systems, and the building envelope.

        • 2

          Buildings need to be energy modeled to show that they are meeting efficiency requirements.

        • 3

          Buildings built in 2023 or later must meet certain efficiency thresholds as well as program specific requirements

        How can I ensure that my
        residential building qualifies for the 45L tax credit?


        To ensure that your residential building qualifies for the 45L tax credit, it’s crucial to work with professionals experienced in energy-efficient construction and tax credit compliance. They can guide you through the energy modeling and third-party certification process, ensuring your building meets the necessary criteria.

        • Is the 45L tax credit available for both new construction and renovations?

          Yes, the 45L tax credit is available for both new construction and substantial renovations. Whether you are constructing a new energy-efficient home or upgrading an existing property to meet the energy-efficiency standards or certifications, you may be eligible for the credit.

        • What are the benefits of the 45L tax credit beyond financial savings?

          The 45L tax credit not only provides significant financial savings for builders, developers, and contractors but also encourages the construction of energy-efficient residential buildings. By promoting sustainable practices, the credit contributes to a greener environment and more comfortable, cost-effective homes for homeowners.

        • Is there a deadline to claim the 45L tax credit for residential buildings?

          Yes; the deadline to claim the 45L tax credit for buildings built before 2023 varies based on the completion date of the residential building. Buildings built in prior years can be retroactively claimed by amending previous tax returns up to 3 years prior. The Inflation Reduction Act authorized the 45L tax credit with its new standards until 2032.

        • Are low-income housing projects eligible for the 45L tax credit?

          Yes, low-income housing projects can qualify for the 45L tax credit if they meet the energy-efficiency requirements and are placed in service within the eligible period. The credit can provide an added incentive for developers to create energy-efficient, affordable housing options.

        • How can home builders, developers, or contractors apply for the 45L tax credit?

          To claim the 45L tax credit, home builders, developers, or contractors must complete IRS Form 8908, Energy Efficient Home Credit, and attach to their federal tax return. Proper documentation, including certification from a qualified third-party verifying the building’s energy efficiency, is crucial for a successful claim.

        • Can I claim the 45L tax credit for energy-efficient features that were already mandated by local building codes?

          Yes. Many local code requirements now exceed the threshold to qualify for the 45L tax credit making many new buildings eligible for the credit if required 3rd party inspections are completed.

        FAQs

        All you need to know about 45L

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        Can individual homeowners claim the 45L tax credit for their energy-efficient homes? keyboard_arrow_down keyboard_arrow_up

        No, individual homeowners cannot claim the 45L tax credit directly. Only builders, developers, or contractors who construct or renovate energy-efficient homes can claim the credit. However, homeowners may benefit indirectly by purchasing a home from a builder who has claimed the credit, as the energy-efficient features may be factored into the home’s value.

        What energy standards does a residential building need to meet to qualify for the 45L tax credit before the passing of the Inflation Reduction Act? keyboard_arrow_down keyboard_arrow_up

        To qualify for the 45L tax credit before 2023, a residential building must demonstrate energy savings that exceed the 2006 International Energy Conservation Code (IECC) baseline by 50% or more. Of the 50% energy savings required, at least 10% of those savings must come from improvements in the building’s envelope. An energy model and site inspection must be performed by a RESNET certified 3rd-party inspector.

        Can I claim the 45L tax credit for an energy-efficient residential building that I constructed for personal use, not for sale or lease? keyboard_arrow_down keyboard_arrow_up

        No, the 45L tax credit is specifically for residential buildings that are constructed for sale or lease to others. If you construct an energy-efficient residential building for personal use and not for sale or lease, you cannot claim the credit.

        Can I combine the 45L tax credit with other energy-related incentives or rebates? keyboard_arrow_down keyboard_arrow_up

        Yes, you can combine the 45L tax credit with other energy-related incentives or rebates, such as state or local energy efficiency programs. 45L is frequently used in conjunction with Low Income Housing Tax Credit eligible projects.

        Can I claim the 45L tax credit for a residential building located outside the United States? keyboard_arrow_down keyboard_arrow_up

        No, the 45L tax credit is available exclusively for residential buildings located within the United States. Properties outside the U.S. are not eligible for this incentive.

        Can I claim the 45L tax credit for energy-efficient features installed in a single-family home I own and rent out to tenants? keyboard_arrow_down keyboard_arrow_up

        Yes, as an individual homeowner, you can claim the 45L tax credit for your residential rental property if you are the one paying for the energy efficiency upgrades and/or renovations that meet the program requirements.

        Is there a limit to the total number of residential units for which I can claim the 45L tax credit? keyboard_arrow_down keyboard_arrow_up

        No, there is no overall limit to the number of residential units for which you can claim the 45L tax credit. Each qualified dwelling unit in a residential building can potentially qualify for the credit.

        Can the 45L tax credit be combined with other federal tax credits or incentives? keyboard_arrow_down keyboard_arrow_up

        Yes, the 45L tax credit can be combined with other federal tax credits or incentives, such as the Investment Tax Credit (ITC) for renewable energy installations.

        Can I claim the 45L tax credit for a residential building that was built as part of a government-funded affordable housing project? keyboard_arrow_down keyboard_arrow_up

        Yes, residential buildings built as part of government-funded affordable housing projects can qualify for the 45L tax credit if they meet the energy-efficiency requirements, as long as the primary eligible contractor has federal tax liability.

        What happens if my residential building meets the energy-efficiency requirements for the 45L tax credit, but I forget to claim it on my tax return? keyboard_arrow_down keyboard_arrow_up

        If you forget to claim the 45L tax credit on your tax return for the year the building was completed, you may still be able to claim it by filing an amended return. Amended returns can be filed within three years from the date you filed the original return or within two years from the date you paid the tax, whichever is later.

        Can I claim the 45L tax credit if I purchased an existing home that was previously renovated to meet the energy-efficiency standards? keyboard_arrow_down keyboard_arrow_up

        No, the 45L tax credit is only available for builders, developers, and contractors who construct or substantially renovate residential buildings to meet the energy-efficiency requirements. It does not apply to individual homeowners who purchase properties with previous renovations.

        Contact us to schedule an initial consultation

        Our in-house team of highly experienced scientists, engineers, tax consultants and attorneys would love to answer all your questions and support your compliance.

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