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Energy Efficiency and 45L

Overview

The credit under IRS Code Sec. 45L was established by the Energy Policy Act of 2005 and was subsequently extended under the American Taxpayer Relief Act of 2016. The purpose of 45L is to promote energy efficiency for personal dwellings that provides developers a $2,000 tax credit per unit, for exceeding energy standards by 50%.

Qualifying Property

Property eligible for the credit must be a dwelling unit, have independent living facilities for one or more persons which include provisions for living, sleeping, cooking and sanitation. The building cannot exceed three stories in height; underground storage or parking are not included in the count for what is above ground. The property can be a newly constructed property or have undergone renovations or rehabilitation. There is no requirement that the dwelling is the person’s primary residence; which means that vacation or second homes may qualify. Dwellings must be located in the United States. The property must meet energy efficiency requirements. Homes completed after 12/31/11 must meet the 2006 International Energy Conservation Code. Homes completed before this time must meet the 2003 Code. To determine if a dwelling qualifies, an inspection must be performed by an eligible certifier, accredited or authorized by RESNET. The developer or builder must obtain a statement from the certifier stating the property meets the energy efficiency requirements. This statement does not have to be submitted to the IRS but must be kept with the taxpayer’s records. Tax Credit The 45L energy efficiency tax credit is available to eligible contractors. The credit is a maximum of $2,000 per dwelling, if all criteria is met with the dwelling and meets the energy efficiency criteria.