Don’t Miss Out on Potential Energy Tax Credits for Your Projects As tax season is upon us, many Home Builders may be unaware of potential tax credits that could translate into significant savings. The 45L tax credit is available to singlefamily and multifamily developers exceeding 2006 energy standards. Being that in Illinois we must build to a much higher standard with the 2018 Illinois Energy Conservation Code this should be a no brainer for our Builder members! BACKGROUND The Energy Efficient Home Credit, as established by the Energy Policy Act of 2005 and codified under §45L of the Internal Revenue Code, allows eligible developers to claim a $2,000 tax credit for each newly constructed or substantially reconstructed qualifying residence. The residence or building must not be more than three stories above grade in height. This incentive was extended by the “Consolidated Appropriations Act, 2021” and applies to residences sold or leased on or before December 31, 2021. HOW IT WORKS An eligible contractor must have constructed a qualified energy efficient home, as well as owned and have had a basis in the home during its construction. An eligible contractor may claim the credit for each home that qualifies for the credit if: • It is located in the United States • It meets certain energy saving requirements • It is sold or leased on or before December 31, 2021 for use as a residence (the credit can be taken retroactively for 4 years back or to any open tax year) • The residence or building must not be more than three stories above grade in height. The §45L credit not only includes new construction, but reconstruction and rehabilitation projects. The incentive applies to single-family homes as well as condominiums, apartment complexes, and other multifamily residential buildings whereby each unit may qualify for a $2,000 credit. ENERGY SAVING REQUIREMENTS The §45L credit is $2,000 for a dwelling unit that is certified to have an annual level of heating and cooling energy consumption at least 50% below the annual level of heating and cooling energy consumption of a “comparable dwelling unit” and has building envelope component improvements that account for at least 1/5 of the 50% reduction in energy consumption. A comparable dwelling unit: • First, it must be constructed according to the standards of chapter 4 of the 2006 International Energy Conservation Code, including supplements, as in effect on January 1, 2006, Second, its heating and cooling equipment efficiencies must correspond to the minimum allowed by Department of Energy regulations under the National Appliance Energy Conservation Act of 1987 that are in effect when its construction is completed. CLAIMING THE §45L CREDIT Certification must be obtained to verify that the home satisfies specific energy efficiency requirements. Further, certification must be done using an independent, qualified individual to verify and certify that the property installed satisfies specific energy efficiency requirements using IRS-approved software. The tax credit is filed using IRS Form 8908, Energy Efficient Home Credit. Page 6
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