Energy-Efficient Contractors Get A Benefit with the Extension of 45L

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Home builders and multi-family property owners have been very happy with the recently-enacted spending package that benefit energy-efficient buildings. The Section 45L New Energy Efficient Home Credit (45L), which had previously been scheduled to expire at the end of 2020, is a part of that package and has been extended through December 31, 2021.

Section 45L allows developers a means to offset the costs associated with building energy-efficient single family or multifamily properties. It provides dollar-for-dollar offset against taxes owed or paid in the tax year in which the property is sold or leased.

Benefits of claiming 45L include:

  • Increase in housing equity
  • Cost-offset for purchasing energy-efficient building materials
  • Increased marketability of the finished properties

Find more ways to save! The 45L tax credit was not the only energy-efficient tax item affected. Section 179D can also benefit your bottom-line.

What is the 45L credit?

45L is a section of the Internal Revenue Code that provides a tax credit of up to $2,000 for each qualified energy efficient residential dwelling unit. Residential properties potentially qualifying for the credit include single family and multifamily residences with three or fewer above-grade stories.

Who can take advantage of the 45L credit?

The credit is available to an eligible contractor who constructed or substantially rehabilitated an energy-efficient residential dwelling unit in the United States that was first occupied in a qualifying tax year. 45L is a general business credit subject to use after considering tax liability limitations and carryover requirements.

What is the certification process for the 45L credit?

An eligible certifier conducts a study of the unit(s), calculating the energy savings over the International Energy Conservation Code 2006 standard using Department of Energy-approved software.

Using this information, a certification package is assembled in which the eligible certifier, under penalty of perjury, states that the facts presented in the certification package are true, correct and complete.

The certification package provides confirmation that the units certified have an annual heating and/or cooling consumption at least 50% less than a comparable residential dwelling, and that at least 10% of the 50% savings is achieved from the building envelope.

A Real-World Example
Eide Bailly advisors worked with a townhome complex owner to obtain the 45L tax credit. The complex was comprised of 56 units and included energy-efficient mechanical systems and building envelopes. By gathering the necessary information and completing the certification, the client received over $112,000 in credits on their current-year tax return (56 units x $2,000/unit).

Are refunds available for 45L?

The recent extension of the 45L tax credit ensured there was no lapse in the availability of the credit. The extension covers qualified residential dwelling units first occupied prior to December 31, 2021 and in an open tax year. Therefore, claims for refunds or amended returns should be considered for prior tax years.

 

Have questions about 45L tax credit or want to start the certification process?

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