Internal Revenue Code Section 45L provides both single and multifamily homebuilders with a $2,000 tax credit for meeting certain energy saving requirements. However, the 45L tax credit expired at the end of 2021, leaving homebuilders waiting for its renewal.
The Inflation Reduction Act of 2022, H.R. 5376, signed by President Biden on August 16, 2022, extended the 45L credit for homes sold or leased during 2022 with little modification. Thus, residences sold or leased in 2022 would qualify for the 45L credit using the 2021 energy efficiency standards. However, from January 1, 2023 through December 31, 2032, the Act significantly changes the 45L Energy Efficient Home Credit with new provisions and requirements.
Beginning in 2023, the Act provides an increased 45L tax credit of $2,500 for single family and manufactured homes when constructed according to the standards set by the ENERGY STAR Residential New Construction Program or the Manufactured Homes Program.
- Single-family homes must meet the ENERGY STAR Single Family New Homes Program, Version 3.1 for homes constructed before January 1, 2025 and Version 3.2 thereafter.
- Manufactured homes must meet the latest ENERGY STAR Manufactured Home National Program requirements as in effect on the latter of January 1, 2023 or January 1 of two calendar years prior to the date the dwelling is acquired.
The Act also provides an even higher 45L tax credit of $5,000 for single family and manufactured homes when they are certified as a DOE Zero Energy Ready Home (ZERH).
For multifamily homes constructed after 2022, the Act provides a 45L tax credit of $500 when meeting the ENERGY STAR Single Family New Homes Program or $1,000 when meeting the DOE Zero Energy Ready Home requirements. If prevailing wage requirements are also satisfied, the credit for multifamily homes increases to $2,500 or $5,000, respectively. The table below summarizes the 45L Credit rules beginning in 2023.
| Home Type | Qualification Requirement | Prevailing Wage Requirement | Credit Amount |
|---|---|---|---|
| Single Family* | EnergyStar | No | $2,500 |
| Single Family* | ZERH | No | $5,000 |
| Manufactured Home | EnergyStar | No | $2,500 |
| Manufactured Home | ZERH | No | $5,000 |
| Multifamily | EnergyStar | No | $500 |
| Multifamily | ZERH | No | $1,000 |
| Multifamily | EnergyStar | Yes | $2,500 |
| Multifamily | ZERH | Yes | $5,000 |
| *Single Family includes site-built and modular single family homes, duplexes and townhomes. |
The Inflation Reduction Act of 2022 has certainly raised the standards for energy efficient home construction with a persuasive tax credit for the next ten years.
This article was published on Account Today Tax Voices.
“Inflation Reduction Act expands energy efficient home credit”
About the author
Alexander Bagne
President · JD, CPA, MBA, CCSP
Alex is the President of ICS Tax, LLC (ICS). His expertise includes fixed asset reviews, cost segregation, the 179D and 45L energy efficiency incentives, accounting methods, research tax credits, and IC-DISC export incentives. Prior to ICS, Alex worked for a decade with several Big Four firms, including Ernst & Young, Deloitte Tax, and PricewaterhouseCoopers. His specialized planning ideas have saved his clients millions in tax dollars. He has given Continuing Professional Education on a variety of tax planning ideas throughout the country. He is published in the AICPA's Tax Adviser magazine and Accounting Today.
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