45L Tax Credit FAQ Post 2023

[Julio Gonzalez]

Under Section 45L of the Internal Revenue Code (IRC), builders and homeowners can claim tax credits for energy-efficient residential dwellings that are newly constructed or substantially reconstructed.

This tax credit was recently extended through 2032 and provides another opportunity for property owners to obtain valuable tax credits.

Here are some important things to know.

What types of properties qualify for this tax credit?

Both residential and mixed-use buildings are eligible. For mixed-use structures, dwelling units and common spaces must exceed 50% of the building’s square footage (excluding parking garages).

There are no height requirements, and the property can be either single-family or multi-family.

Examples of properties that may qualify include:

• Single-family homes
• Townhomes
• Apartment complexes (any size)
• Duplexes
• Triplexes
• Manufactured homes
• Assisted living facilities (any size)
• Student housing (any size)

What energy standards need to be met to qualify?

Buildings must meet Zero Energy Ready Home (ZERH) or ENERGY STAR standards. They must also be certified by an IRS-approved entity.

Can remodeling projects qualify?

Yes, if the renovations are substantial. However, depending on the scope of the renovations, meeting some program requirements may present unique challenges for existing homes. Expert guidance is always advised if you are seeking the 45L tax credit.

Can you apply this tax credit to past properties you’ve built?

Yes. You can claim the 45L tax credit retroactively on qualifying properties that were constructed or substantially renovated within the past three open tax years.

Can you claim 45L and 179D on the same property?

Prior to 2023, you could not claim 45L and 179D on the same property due to height requirements. The 2023 update removes the height restrictions on the 45L tax credit, making it possible to claim both 45L and 179D on residential buildings that are at least four stories.

What are prevailing wages?

Larger tax credits may be available for multi-family properties when prevailing wage requirements are met. According to the IRS, taxpayers must ensure that all employed laborers and mechanics who work on the construction or renovation of a facility are paid “wages at rates that are not less than the prevailing rates determined by the Department of Labor” to qualify.

Have you claimed the 45L tax credit or are you planning to?