Builders of qualified new energy efficient homes might qualify for an expanded tax credit under Section 45L
Cook and Company Tax Advisors reminds eligible contractors who build or substantially reconstruct qualified new energy efficient homes that they might qualify for a tax credit up to $5,000 per home.
The actual amount of the credit depends on eligibility requirements such as the type of home, the home’s energy efficiency and the date when someone buys or leases the home. This important credit was expanded as part of the Inflation Reduction Act of 2022.
Eligibility for builders and homes
To qualify, eligible contractors must construct or substantially reconstruct a qualified new energy efficient home. They also 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.
The homes must also be specified categories of single-family (including manufactured) or multifamily homes under Energy Star programs, be located in the United States, and meet applicable energy saving requirements based on home type and acquisition date.
Requirements and credit amounts for 2023 and after
For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on the standards met, which include:
- Energy Star program requirements
- Zero energy ready home program requirements
- Prevailing wage requirements
Requirements and credit amounts before 2023
For homes acquired before 2023, the credit amount is $1,000 or $2,000, depending on the standards met, which include:
- 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
- Meeting certain Energy Star requirements
Properly claiming the credit
Eligible contractors must meet all requirements under Internal Revenue Code Section 45L prior to claiming the credit. Guidance interpreting Section 45L may be found in Notice 2008-35 (and Notice 2008-36, for manufactured homes).
Use Form 8908, Energy Efficient Home Credit, to claim the Section 45L credit. If the source to claim the credit is from a partnership or S corporation, eligible contractors should use Form 3800, General Business Credit. The IRS encourages eligible contractors to practice good recordkeeping of all documents required to support a claim for the Section 45L credit.