Welcome to the New §45L Tax Credit
The §45L tax credit was passed by congress as part of the Energy Policy Act of 2005 to incentivize building energy efficient residential properties. Originally, this incentive rewarded builders or developers of single family and multifamily homes with a tax credit of $2,000 per home for meeting certain energy efficiency criteria. However, with the passing of the Inflation Reduction Act of 2022 (IRA), congress extended the §45L tax credit until 2032, and significantly expanded the scope of this incentive.
How Did the Inflation Reduction Act of 2022 Expand §45L?
- Prior to the Inflation Reduction Act (IRA), any builder or developer could qualify for the $2,000 45L tax credit if a 3rd party inspector could show that the built home was 50% more efficient than the standard home built to 2006 codes. However due to the changes mandated by the IRA, beginning in 2023, to qualify for the §45L tax credit the builder/developer must build to either, Energy Star Homes standards for a $2,500 tax credit or build to Zero Energy Ready Homes (ZERH) provisions for a $5,000 tax credit.
For multifamily family buildings, the builder/developer can qualify for $500 per unit for meeting Energy Star requirements or $1,000 per unit for meeting ZERH specifications, unless they meet prevailing wage requirements, in which case, they qualify for the full $2,500 and $5,000 respectively.
Do I qualify for the §45L tax credit?
If you have built or developed and sold or leased any homes before 2023 then you most likely would qualify for the §45L tax credit.
- Most municipalities have adopted codes that exceed the requirement of being 50% more efficient than 2006 codes, so many developers are likely to qualify without being aware they were eligible to begin with.
- Thanks to the open tax year, if a project was completed between 2020 and 2023 you can still claim the $2,000 per unit credit.
If a developer or builder plans on building to Energy Star or Zero Energy Ready Homes standards for any projects starting in 2023, then they are likely to qualify for this incentive.
What Buildings Qualify for §45L?
- Single family homes
- Town homes
- Condos
- Apartments
- Assisted care facilities
How can Leyton help?
With a staff of Professional Engineers, HERS raters, and CPA’s and tax experts we are the all-in-one §45L. Whether a developer is trying to get the most out of their existing project or looking to offset the costs of a new build, Leyton has the expertise to assist with determining eligibility for and maximizing tax credit and incentives geared towards commercial real estate project.
