Home builders and multi-family property owners should be very happy with the recently enacted spending package. 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 is now available through December 31, 2021.
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The 45L tax credit was not the only energy-efficient tax item affected.
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.
We worked with a townhome complex owner to obtain the 45L 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 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.
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