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By Ugo Onwudiegwu, CPA, JD, Senior Tax Manager

It’s not too late for home builders to claim the 45L credit for 2021, and proposed legislation may allow eligible contractors to take advantage of this tax benefit through 2022 and beyond.

About the 45L Credit

Extended by the Consolidated Appropriations Act (CAA) in 2021, the 45L credit is a tax incentive available to home builders and multifamily developers. The credit allows “eligible contractors” to claim a $2,000 tax credit for each newly constructed or substantially reconstructed energy-efficient home in the year that unit is sold or leased as a residence. To meet the credit requirements, the dwelling units must be at least 50% above the 2006 International Energy Conversation Code (IECC) and its features must be verified by an eligible certifier.

Who Qualifies

An “eligible contractor” includes the person or entity who owns the qualified energy-efficient home during its construction. Qualified dwellings may include:

  • Residential condominiums
  • Assisting living homes
  • Apartment buildings
  • Student housing
  • Affordable housing

Keep in mind, the dwelling units cannot exceed three stories in height.

Proposed Tax Legislation

The 45L credit expired on Dec. 31, 2021; however, proposed tax legislation would increase the credit to $2,500 per dwelling unit, plus extend it through Dec. 31, 2026. Additionally, the proposal would modify and expand the dwelling units eligible for the credit. Under proposed legislation, the required energy savings percentage would increase to 60% under the IECC standards. The legislation would also make certified Energy Star Homes eligible for the credit, plus include dwelling units with annual heating and cooling consumption at least 15% below the annual energy consumption level of a comparable dwelling unit under the 2018 IECC standards.

With the 2022 filing season underway, homebuilders and multifamily developers are encouraged to work with their dedicated real estate tax advisor, like those at Doeren Mayhew, to determine whether they are able to take advantage of this tax credit and possibly amend prior-year returns if not previously claimed. To obtain assistance with your tax needs or to learn more about additional real estate tax savings opportunities, contact us today.