Section 45L of the Internal Revenue Code provides both single and multifamily homebuilders with a $2,000 tax credit for meeting certain energy saving requirements. However, the 45L tax credit expired at the end of 2021, leaving homebuilders waiting for its renewal.
The Inflation Reduction Act of 2022, signed Tuesday by President Biden, extended the 45L credit for homes sold or leased during 2022 with little modification. Thus, residences sold or leased in 2022 would qualify for the 45L credit using the 2021 energy efficiency standards. However, from Jan. 1, 2023 through Dec. 31, 2032, the Act significantly changes the 45L Energy Efficient Home Credit with new provisions and requirements.
Beginning in 2023, the Act provides an increased credit of $2,500 for single family and manufactured homes when constructed according to the standards set by the Energy Star Residential New Construction Program or the Manufactured Homes Program.
- Single-family homes must meet the Energy Star Single Family New Homes Program, Version 3.1 for homes constructed before Jan. 1, 2025 and Version 3.2 thereafter.
- Manufactured homes must meet the latest Energy Star Manufactured Home National Program requirements as in effect on the latter of Jan. 1, 2023 or Jan. 1 of two calendar years prior to the date the dwelling is acquired.
The Act also provides an even higher credit of $5,000 for single family and manufactured homes when they are certified as a DOE Zero Energy Ready Home (ZERH).
For multifamily homes constructed after 2022, the Act provides a credit of $500 when meeting the Energy Star Single Family New Homes Program or $1,000 when homes are certified as a ZERH.
Furthermore, starting Jan. 1, 2023, homebuilders must satisfy prevailing wage requirements.
The Inflation Reduction Act of 2022 has certainly raised the standards for energy efficient home construction with a persuasive tax credit for the next ten years.