Did you build a single or multifamily development during the 2020, 2021, or 2022 fiscal years? If you did, it is likely that you are eligible to claim the 45L Tax Credit of up to $2,000 per eligible dwelling. Read this article to find out why.
Background of the §45L Tax Credit
The §45L Tax Credit was first introduced by congress in 2005 to encourage the building of more efficient homes by offering a $2,000 tax credit per eligible home. The credit applies to single and multifamily homes that have three stories or fewer and are 50% more efficient than the energy codes from 2003.
READ: Builders, Developers, and the §45L Tax Credit
Since 2005, the relevant 45L legislation has been regularly reauthorized by congress without changes until 2022. With the passing of the Inflation Reduction Act, starting in 2023, to qualify for 45L builders must meet Energy Star or Zero Energy Ready Homes certifications to receive the tax credit. While most builders and developers are not yet building to Energy Star or Zero Energy Ready Homes, many still can qualify for the 45L Tax Credit.
Many developments already meet code requirements
When the 45L tax code was first introduced, it was difficult to build a development that was 50% more efficient than 2006 codes due to the inefficient nature of most building systems on the market.
As time has progressed though, building systems and techniques have increased in efficiency, superiority, and availability across the board.
Additionally, local and state adopted energy codes have become increasingly stringent over time, forcing builders to adopt newer techniques and equipment.
All this has occurred while the 45L Tax Credit has remained based on 2006 codes, which has meant that homes built between 2015 and 2023 are likely to qualify for the credit without realizing it.
Retrospectively Claiming the §45L Tax Credit
Builders and residential developers who have not claimed the 45L tax credit for new or improved dwellings that were sold or leased between 2020 and 2022, are able to claim the credit retrospectively due to the concept of an Open Tax Year. This is a mechanism through which the IRS allows taxpayers to amend filings from up to three years prior to capture any credits or refunds they may have missed.
At Leyton, we have a team of dedicated tax experts who can identify single and multifamily projects that will qualify for the tax credit and assist with the entire claiming process. Reach out today to have your developments assessed.
