The Energy Efficient Home Credit, also known as Section 45L by the Internal Revenue Code (IRC), is a Federal Tax Credit that offers incentives for real estate investors to develop energy efficient homes and units.
The tax credit applies to newly constructed or substantially renovated residences. Single-family homes, apartments, and condominium units with 20 or more units can be assessed for energy tax credits.
This tax credit has existed since 2006 and was set to expire at the end of 2021; however, it was extended by ten years, increased, and modified under the Inflation Reduction Act of 2022. The applicable period to claim the credit is extended through 2032. Taxpayers that have missed this credit in the last 3 year filings may be able to amend their tax returns and claim this credit.
Typically the home builder or developer can claim up to $5,000 per unit on their federal income tax return. The credit is claimed in the year the qualified dwelling units are sold or leased. It’s crucial to keep proper documentation, including certification from an eligible certifier, to support the claim.
The properties must meet specific energy efficiency criteria to qualify for the credit, which include reductions in heating and cooling energy consumption. The requirements may vary depending on the size and location of the building. The energy efficiency of the dwelling units must be certified by an eligible certifier. See the Energy Star and Zero Energy Ready Homes certification programs by the Department of Energy.
Section 45L may have certain limitations, definitions, and expiration dates. This article is for educational purposes only and should not be taken for business advice about your specific situation. Please schedule an appointment with a Principal at Bernstein Financial Services to help you determine your optimal planning strategies.