The 45L Energy Efficient Home Credit is a valuable federal incentive designed to reward builders and developers who construct energy-efficient residential properties. Recent legislative updates have expanded eligibility, increased potential credit amounts, and extended the program for several more years, making it a key tool for reducing tax liability and promoting sustainable building practices.
Recent Legislative Changes and Extension Through 2032
The Inflation Reduction Act (IRA) of 2022 significantly revamped the 45L Energy Tax Credit. Originally set to expire at the end of 2021, the credit has now been extended through December 31, 2032.
The updates not only provide long-term stability for developers but also introduce new performance standards tied to recognized energy-efficiency programs, such as ENERGY STAR and Zero Energy Ready Home (ZERH) certifications. These changes ensure the credit aligns with modern building efficiency goals and environmental standards.
Who Qualifies for the 45L Credit?
The 45L credit applies to developers, builders, and contractors who construct or substantially rehabilitate qualifying energy-efficient residential properties in the U.S. Eligible projects include:
- Single-family homes
- Multifamily dwellings (up to three stories above grade)
- Manufactured homes
To qualify, each dwelling unit must meet or exceed the energy-saving requirements established by the IRS and the Department of Energy. Importantly, the credit is available only for homes that are sold or leased as residences during the tax year.
Certification Requirements: ENERGY STAR and Zero Energy Ready Home (ZERH)
Under the updated rules, projects must now meet third-party verified energy-efficiency standards.
- ENERGY STAR Certification: Qualifying properties must meet or exceed the ENERGY STAR program requirements for new homes or multifamily buildings.
- Zero Energy Ready Home (ZERH) Certification: Properties that meet the Department of Energy’s ZERH standards qualify for an even higher credit.
Both certifications require an independent, qualified certifier to verify compliance before claiming the credit.
Credit Amounts and Tiered Incentives
The Inflation Reduction Act introduced tiered credit amounts based on certification type and whether prevailing wage standards are met:
- ENERGY STAR Certified Homes:
- $2,500 per dwelling unit
- $5,000 per dwelling unit if prevailing wage requirements are met
- Zero Energy Ready Homes (ZERH):
- $5,000 per dwelling unit
- $5,000 per dwelling unit with or without prevailing wage (ZERH certification automatically qualifies for the higher rate)
This tiered structure allows developers to increase their tax benefits by investing in higher-efficiency building practices and ensuring fair labor compensation.
Special Rules for Multifamily Projects and Prevailing Wage
For multifamily projects, the 45L credit can be claimed per qualified dwelling unit, significantly amplifying the total benefit. However, to receive the higher-tiered credit, builders must meet prevailing wage and apprenticeship requirements for all labor on the project.
Meeting these wage standards ensures that workers are paid competitive rates as defined by the Department of Labor, aligning the program with broader federal goals of workforce fairness and sustainability.
How to Claim the 45L Tax Credit
To claim the 45L Energy Efficient Home Credit:
- Obtain third-party certification from an eligible energy rater confirming ENERGY STAR or ZERH compliance.
- Maintain proper documentation, including certification reports and project records.
- Complete IRS Form 8908, “Energy Efficient Home Credit,” and attach it to your tax return.
Developers and builders should also work closely with their tax advisor or a qualified specialist, like CSSI, to ensure eligibility and maximize their available credits.
Conclusion
The updated 45L Energy Tax Credit offers builders and developers a decade of opportunity to reduce tax liability while contributing to energy efficiency and environmental stewardship. With generous credit amounts, extended timelines, and new certification pathways, 45L remains one of the most impactful incentives in the real estate and construction industries.
If you’re constructing or rehabilitating residential or multifamily projects, CSSI can help you navigate the qualification process, ensure proper certification, and optimize your available credits.
