§45L Energy Efficient Home Credit

What is the §45L Credit?

The Energy Policy Act of 2005 created §45L – New Energy Efficiency Home Credit, to promote the construction of new, energy efficient single-family homes and low-rise residential buildings. The Energy Efficient Home Credit provides eligible contractors with a $2,000 tax credit for each residential unit that meets the energy threshold requirements. Manufactured homes are eligible for a $1,000 credit.

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Who can take the credit?

Contractors and builders. The IRS defines “eligible contractors” as the person or organization that constructed the qualified energy efficient home. For purposes of §45L, a person (i.e., an individual, a trust, an estate, partnership, association, company or corporation) must also own and have a basis in the qualified energy efficient home during its construction to qualify as an eligible contractor with respect to the home.

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What amount of Energy Efficiency is Required?

The efficiency threshold requires a 50% reduction (30% for manufactured homes) in expected energy and power costs relative to a reference building determined based on 2006 IECC energy standards. The 50% energy reduction is based solely on HVAC and building envelope, additionally the building envelope must account for 10% of the energy reduction.

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What Types of Buildings Can Qualify?

• Affordable Housing
• Apartment Buildings
• Assisted Living Facilities
• Manufactured Homes
• Production-Home Developments
• Residential Condominiums
• Student Housing

Qualifying Property

• Freestanding single-family home, townhouse, manufactured home, condominium or apartment unit. Each unit within an apartment or condominium complex is eligible for a separate credit.

• The building must stand three stories or less above grade.

• Properties must be substantially completed after August 8, 2005. Dwellings that have undergone substantial renovation and rehabilitation that are completed after this date are also eligible.

• Qualifying properties must be sold or leased during the tax year the credit is being claimed.

• The dwelling must show at least a 50 percent reduction in energy consumption compared to other units constructed in accordance with the standards set forth in the 2003 International Energy Conservation Code and 2004 Supplement.

• At least 10 percent of the energy savings associated with heating and cooling must be derived from attributes associated with the building envelope (roof, walls, windows, etc.).

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