§45L Energy-Efficient Tax Credit
What is the 45L Tax Credit?
The 45L tax credit is a federal tax incentive for residential property developers, builders, and investors to create energy-efficient homes that meet specific sustainability standards. This federal tax credit rewards multifamily developers, investors, and home builders with $2,000 per dwelling unit for developing energy-efficient homes and units that are sold or leased after December 31, 2005.
Starting in 2023, the Inflation Reduction Act increases the tax credit amount to as much as $5,000 per dwelling unit for both single-family and multifamily developments - a huge win for developers committed to energy efficiency. Not only that, but the energy efficiency criteria is also updated to align with Department of Energy programs for Energy Star and Zero Energy Ready Homes.
Do You Qualify?
You may be eligible for the highly coveted 45L tax credits, provided that you have developed, constructed, or renovated a residential property, such as an apartment complex, condo development, or production home development.
Which buildings qualify for the §45L tax credit?
Single Family Homes
$2,500 tax credit for single family homes certified as ENERGY STAR Single Family New Homes Program Version 3.1. (For homes acquired1 before January 1, 2025 and Version 3.2 thereafter).
$5,000 tax credit for single family homes certified as DOE Zero Energy Ready Home (ZERH).
$2,500 tax credit for manufactured homes certified as ENERGY STAR Manufactured Home National Program requirements.
$5,000 tax credit for manufactured homes certified as DOE Zero Energy Ready Home (ZERH).
$500 tax credit for multifamily homes constructed after 2020 and certified as ENERGY STAR Single Family New Homes Program. When constructed with prevailing wage, the credit increases to $2,500.
$1,000 tax credit for multifamily homes certified as DOE Zero Energy Ready Home. When constructed with prevailing wage, the credit increases to $5,000.
Buildings Three Stories or More
Beginning 2023, all residential buildings are eligible. Homes leased or sold as a residence within buildings higher than three stories are eligible, including:
Low-rise: 1-4 stories
Mid-rise: 5-9 stories
High-rise: 10 or more stories
Leased or Sold Prior to 2023?
Single-family homebuilders and multifamily developers can take advantage of the §45L Credit for residential properties that were leased or sold before 2022. This credit allows:
A maximum of $2,000 per unit for newly constructed energy-efficient homes
$1,000 per unit for manufactured homes.
To be eligible for the tax credit, a contractor must have constructed an energy-efficient home and owned the property during its construction.
The following requirements must be met:
The property must use at least 50% less heating and cooling energy annually than a comparable unit built according to 2006 IECC standards.
Improvements to the building envelope must account for at least 20% of the energy reduction.
The property must be three stories or less and sold or leased as a residence.
The credit can be claimed retroactively for up to three years or any open tax year.
The credit applies to single-family homes, apartments, assisted living facilities, student housing, and condos. Each unit in a multifamily facility is eligible.
If you're interested in taking advantage of the §45L Credit, our team is here to help. Our team consists of experienced HERS raters and tax professionals who will work together to perform free assessments to determine whether your homes qualify for the credit. These assessments will help you determine whether your homes meet the necessary energy efficiency standards and can help you take advantage of the tax credit. So if you're a single-family homebuilder or multifamily developer looking to build energy-efficient homes, reach out to our team to get started.