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The 45L Credit: Are You Taking Advantage of the New Energy Efficient Home Credit?

01.23.13

The New Energy Efficient Home Credit, also known as the 45L credit, first became available for tax years after December 31, 2005. Though it expired in 2011, the recently passed 2012 Taxpayer Relief Act retroactively restores and extends the credit for 2012 and 2013.

This credit applies to eligible contractors, who can take either a $1,000 or $2,000 tax credit for each qualifying new energy efficient home. That means, a contractor who develops an apartment complex containing 50 units could potentially qualify for $100,000 in federal tax credits. Learn more below.

Who qualifies?

Only "eligible contractors" can qualify for the credit. An "eligible contractor" is someone who constructs or produces qualified new energy efficient homes and owns and has a basis in the home during construction.

Examples of eligible contractors include:

  • A contractor who produces qualified energy efficient manufactured home and sells the manufactured home to a homeowner.
  • A contractor who produces a qualified energy efficient manufactured home and leases the manufactured home to a lessee or tenant.
  • A contractor who hires a third party contractor to produce a qualified energy efficient manufactured home and then sells the manufactured home to a homeowner.
  • A contractor who produces a manufactured home and sells the home to a dealer of manufactured homes, who then sells the manufactured home to another person for use as a residence.

What qualifies?

In order to qualify for the credit, a qualified new energy efficient home must have been constructed by an eligible contractor (substantial reconstruction and rehabilitation), and acquired from the eligible contractor during the tax year by someone who intends to use it as a residence.

Qualified new energy efficient homes are dwelling units whose construction was substantially completed after August 8, 2005 and which meet the energy saving requirements described below. They must also be located in the United States.

The dwelling unit must be a single unit providing complete independent living facilities for one or more persons, including permanent provisions for living, sleeping, eating, cooking, and sanitation within a building no more than three stories above grade in height. Apartment complexes, senior living facilities, student housing, and residential condominiums qualify.

The unit must be certified under one of these categories:

A certified new home and certified manufactured home must have an annual heating and cooling energy consumption level of at least 50% below that of a comparable dwelling unit, of which the building envelope component improvements account for at least one-fifth of that 50% achievement. The difference between a certified new home and a certified manufactured home is that the latter conforms to Federal Manufactured Home Construction and Safety Standards (FMHCSS). The tax credit is $2,000 per eligible dwelling unit.

An alternatively certified manufactured home is a dwelling unit that conforms to FMHCSS and is certified to have an annual heating and cooling energy consumption level at least 30% below that of a comparable dwelling unit, of which the building envelope component improvements account for at least one-third of that 30% achievement. The tax credit is $1,000 per eligible dwelling unit.

An Energy Star manufactured home is a dwelling unit that conforms to FMHCSS and meets the requirements established by the Administrator of the Environmental Protection Agency under the Energy Star Labeled Homes program. The tax credit is $1,000 per eligible dwelling unit.

A comparable dwelling unit is a dwelling unit that satisfies two conditions:

  1. It is constructed in accordance with the standards of chapter 4 of the 2006 International Energy Conservation Code, including supplements, as in effect on 2006 (2003 under the pre-2012 Act);
  2. 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.

How to qualify and claim the credit?

The homes listed above must be certified in writing based on IRS guidelines. Certification is made by an eligible certifier based on IRS-prescribed procedures and methods for calculating energy and cost savings and the eligible certifier must use IRS approved software programs to calculate energy consumption of the dwelling unit. The certification does not need to be submitted with the tax return but should be kept in the eligible contractor’s files along with his or her books and records.

The tax credit can be claimed on the eligible contractor’s 2012 and/or 2013 tax returns. If a contractor missed this opportunity in prior years, the credit may be claimed by filing an amended tax return.

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If a home is being built in an area where building standards are high, it may be worth considering whether or not this provision applies.

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