The §45L Energy Efficient Tax Credit is a federal tax incentive that promotes the construction of energy-efficient residential buildings. Available to builders and developers whose projects meet the qualifying criteria, this tax credit of up to $5,000 per dwelling unit can yield significant returns.
The Inflation Reduction Act, signed on August 16, 2022, extends the 45L tax credit through 2032 providing up to $5,000 per unit on qualifying energy-efficient homes.
Builders of homes completed before January 1, 2023, that meet qualifying standards are eligible to receive a $2,000 tax credit. Qualifying homes completed on or after that date are eligible for the new tax credit as follows:
The person claiming the 45L credit on their tax return must own and have a basis in the qualifying project during its construction. A “person” can be an individual, a trust, an estate, a partnership, an association, a company, or a corporation. Most entities currently claiming the 45L credit are homebuilders and developers. The IRS terminology refers to this person as an “Eligible Contractor”. This is sometimes confusing as the credit is available to the person who financed and owned the project during construction, not the third-party contractor(s) who were paid to build it. A key requirement of the tax credit is the sale (close of escrow) or lease (executed lease/rental agreement) of the home or dwelling units during the taxable year the credit is claimed. The credit is typically not available to a person eventually residing in the home.