The Internal Revenue Service last week issued guidance on the 45L Tax Credit for Energy Efficient Homes, which saw a retroactive extension as well as changes as a result of the Inflation Reduction Act (IRA).
As the tax credit now exists, it allows for “eligible contractors” to potentially receive up to $2,000 for energy efficient homes acquired before 2023 and up to $5,000 for energy efficient homes acquired after 2023. Eligibility for contractors requires both that they “construct or substantially reconstruct and rehabilitate quality new energy efficient homes” as well as that they “must own the home and have a basis in it during the construction, and they must sell or lease the home to a person for use as a residence.” What makes a home “energy efficient” has also been further clarified.
For homes acquired prior to 2023, the requirements for credit—which will be either $1,000 or $2,000, depending on the standards met—are as follows:
- Certifying that the home has an annual level of heating and cooling energy consumption that is at least 50% (or 30% for certain manufactured homes) less than that of a comparable home that meets certain energy standards, with building envelope component improvements accounting for at least 1/5 (or 1/3 for certain manufactured homes) of the reduction.
- Meeting certain federal manufactured home rules
For homes acquired after 2023, the requirements for credit—which include a $500, $1,000, $2,500, or $5,000 credit, depending on the standards met—incorporate Energy Star program requirements and Zero Energy Ready Home program requirements. Specifically for multifamily dwelling units, eligibility for credit will also incorporate prevailing wage requirements.