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New & Improved: 45L Energy efficient home tax credit

November 14, 2023

by Kevin Kalal, CPA

45L energy tax credit

You’ve likely heard of the 45L energy efficient home tax credit that rewards homebuilders, investors, and developers for constructing or upgrading energy-efficient homes and multifamily developments. After all, it’s been in existence since 2006. What you might not have heard: The Inflation Reduction Act has significantly enhanced the tax credit’s benefits.

If you haven’t already, here’s why you should consider giving the new-and-improved 45L energy tax credit a second look.

Bigger and better tax savings

Historically, the 45L energy tax credit has had a reputation among some taxpayers as not being worth the effort to apply for it. But now their tunes may have changed.

Effective January 1, 2023, the 45L credit is worth a maximum of $5,000 per dwelling unit, which represents a noteworthy jump from its previous amount of $2,000 per dwelling unit. This is especially true when you consider the tax credit’s per-dwelling benefit. The more qualified units you have, the more substantial the increase becomes.

Expanded property eligibility

The recent updates to the 45L energy tax credit also include an expansion in the types of eligible properties. Previously the tax credit was limited to buildings with three stories or fewer above grade. Now, mid- and high-rise buildings may also qualify.

Eligible building types (both rental and primary properties) include:

  • Single and multifamily homes
  • Townhomes
  • Condominiums
  • Senior living facilities
  • Student housing

Of course, there are certain energy-efficiency ratings (e.g., ENERGY STAR®, Zero Energy Ready Home, etc.) each building type must meet in order for taxpayers to claim all or part of the tax credit.

More time to qualify

The Inflation Reduce Act also extended the lifespan of the 45L energy tax credit. Currently, the credit is set to sundown on December 31, 2032. This means you have nearly 10 years (at least) to take advantage of the tax credit—and plan for 45L in your upcoming projects.

Could you qualify for the 45L energy tax credit this year?

If you’ve developed, constructed, renovated, or invested in a multifamily housing development or production home within the past four years, you may qualify for the 45L energy tax credit. If you’re a builder, you may be able to claim 45L in the year your project was placed in service (even if you can’t immediately use the credit). You may also wish to combine 45L with other energy tax credits, such as the 179D tax deduction.

Explore your options

The recent updates to the 45L energy tax credit make it more valuable than ever. If you think you could qualify, we can help. Reach out to us with your questions, and we’ll walk you through your options to determine if applying makes sense for you.

To get a clearer picture of how 45L could benefit you, contact us today.


Meet the Expert

Kevin Kalal, CPA, MBT

Kevin’s focus is on developing creative solutions for minimizing taxes, managing cash flow and strategic planning.

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