45L Tax Credit: Maximizing Your Energy Efficient Building Benefits

Written by Corporate Tax Incentives. Updated Sep 21, 2017.

bulb-2287759_640.jpgBuilding energy efficient structures have direct cost benefits reflected in decreased energy bills; however, sometimes the tax credits associated with energy efficient buildings are overlooked. Incentive programs such as the 45L tax credit offer builders and developers the opportunity to maximize tax savings.

Through the Section 45L credit program, contractors earn a $2,000 tax credit for each energy-efficient dwelling unit sold or leased between January 1, 2012 and the end of 2016.

On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes of 2015 (PATH Act). This legislation extended the New Energy Efficient Home Tax Credit under Code Section 45L through the end of 2016.

Properties Eligible For The 45L Tax Credit

The Section 45L tax credit applies to single family and multi-family dwelling units that are energy efficient and stand as tall as three stories or less. If these dwellings exceed the 2006 Edition of the International Energy Conservation Code (IECC) heating and cooling budgets by 50%, the responsible contractor is eligible for a $2,000 tax credit.

Successful features in energy-efficient homes that qualify for the 45L tax credit include High R-Value:

  • Insulation
  • Roofing
  • Windows
  • Doors
  • HVAC systems

Contractors who worked in California are at a significant advantage for claiming this credit due to the fact that California does not use the national model for its own energy codes. The California Energy Commission (CEC) has adopted a California-specific energy code that’s been in use for over three decades.

The CEC’s energy code is significantly more stringent than the national code guiding eligibility for the 45L tax credit. As such, this tax credit is much more accessible to builders in California.

Who Does The 45L Tax Incentive Consider An Eligible Contractor?

For the purposes of 45L, a person must own and have a basis in the energy-efficient home during its construction to qualify as the eligible contractor. For example, a person who hires a third party to build a home he owns is recognized as the eligible contractor, not the third party who builds the home.

An eligible contractor must also hold a certification before earning the 45L tax credit that proves he is qualified to claim the credit. The certifier must not be related to the contractor and must be accredited by the Residential Energy Services Network (RESNET).

Part of the certification process involves the certifier conducting computer models and on-site tests to prepare a certification package. If the certifier believes under penalty of perjury that the facts in his or her report are true, and the building exceeds IECC standards, the contractor may submit for the 45L tax credit.

Eligible construction also includes substantial reconstruction and rehabilitation. Homebuilders and developers can still claim the 45L tax credit retroactively if they did not claim them on previous tax returns so all residential developments and apartment buildings completed within the last 4 years are worth assessing for potential 45L tax credits.

Due to the complexity of submitting for this valuable credit, many contractors find it helpful to consult an outsourced tax expert. Tax incentives for energy efficiency are just one example of an opportunity for maximizing tax credits.

Learn more about energy efficient tax credits and other programs available in your area by finding your state below.

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Topics: Federal, Energy Incentives

Corporate Tax Incentives

Written by Corporate Tax Incentives

CTI is a tax incentives specialty firm that secures greater tax credits for businesses with our proven project methodology and unparalleled personalized service. For almost 20 years, our elite tax professionals have proactively engaged clients to deliver unmatched value with transparency and efficiency thorough secure in-house software, comprehensive audit-ready deliverables, and 24x7 access to real-time dashboards. We are tax consultancy experts passionate about maximizing credits and incentives for powering the success of your business.