Maximizing Section 45L Tax Credits for Energy-Efficient Home Builders

The Inflation Reduction Act (IRA) of 2022 substantially expanded the Section 45L tax credit for new energy-efficient homes. This credit offers builders of sustainable homes significant tax savings. Here’s what you need to know to take advantage of these updated credits and maximize the benefits for your projects.

Key Takeaways:

• The Inflation Reduction Act amended Section 45L, which impacted the amounts available to taxpayers as well as the eligibility requirements
• The value amount of the credit depends on the type of home it is and which energy efficient requirements it meets
• To be fully eligible and ensure a home meets Section 45L’s energy standards, these homes must be certified

Key Changes to Section 45L Under the Inflation Reduction Act

The IRA made several impactful modifications to Section 45L, affecting both the amount of credit available and the eligibility requirements for energy-efficient homes:

• Qualified energy-efficient homes acquired after December 31, 2022, were amended under § 13304 of the IRA in the following ways:
  • Altered the applicable amount of the credit determined by § 45L(a)(2)
  • Set new energy savings requirements
  • Added an exception to the required basis adjustment
  • Redesignated § 45L(g) as § 45L(h) and added new prevailing wage requirements
  • Amended newly redesignated § 45L(h) to allow new energy efficient homes acquired on or before December 31, 2032 to qualify for the credit

The credit amount changes depending on several variables, including meeting certain energy-efficiency requirements and the type of construction.

Who Qualifies as an Eligible Contractor?

An eligible contractor under Section 45L is the individual or business responsible for constructing the qualified energy-efficient home. For manufactured homes, the producer of the home may also qualify. This provision opens eligibility for both general contractors and specific manufacturers, providing a wider range of builders with access to these tax savings.

Certification Process for Energy-Efficient Homes

Eligible homes must be certified to ensure they meet Section 45L’s energy standards. This certification process involves calculating energy consumption levels, often verified through Residential Energy Services Network (RESNET) or equivalent methods, to confirm compliance with the prescribed reductions in heating and cooling usage.

The Inflation Reduction Act has made Section 45L more accessible and valuable than ever for contractors committed to energy-efficient construction. By understanding and leveraging these credits, you can reduce tax liabilities and support sustainable building practices. Anders Real Estate and Construction advisors work with clients to navigate compliance, eligibility requirements and more. To learn more about your potential tax savings from credits and deductions, and the associated cost, request a meeting with an Anders advisor below.

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