The bill about the Consolidated Appropriations Act 2021 was enacted into law last December 27, 2020. This law includes the 45L Tax Credit extension on the Energy Efficient Homes that has been provided in Section 146 which was set to expire on December 31, 2020.
The preceding 2020 reauthorization measure included a retroactive extension of the 45L tax credit from January 1, 2018, to December 31, 2020. If they fulfilled the qualifying conditions, all houses closed during that time period became retroactively qualified for the $2,000/home federal tax credit. This law has been continued through 2021 for new construction, repairs of single-family houses, and multifamily buildings with a maximum height of three stories.
Methods Used To Capitalize On This Extension
Each and every one of the residences that were shuttered between January 1st, 2018, and December 31st, 2019 is retroactively eligible. All residences that were closed in the calendar years 2020 and 2021 are likewise eligible for this current prolongation.
To be eligible, we must show that your home's heating and ventilation energy loads have been 50% less than those of a comparable house constructed to the 2006 International Energy Conservation Code (IECC) AND that changes to the building envelope contribute to at least 1/5 of the 50% energy reduction.
How the 45L Tax Credit Operates
The 45L Tax Credit must be used as a basis during the construction of an energy-efficient home by an eligible contractor. The 45L tax credit of the certified contractor can be claimed when the following requirements are met:
- When the location of the home is in the United States
- The required energy savings have been fulfilled by the constructed home dwellings
- The home constructed for this purpose has been sold or leased on or before the 31st day of December 2021 and this has been utilized as a dwelling. In this case, the credit can be used retroactively for three years or to any open taxable year.
- The home or structure should not be more than three floors above ground level in elevation.
Building projects that qualify for the 45L credit comprise not just new construction, but also rebuilding and restoration. The incentive is available for single-family houses as well as condos, apartment buildings, and other multifamily residential structures, with each unit potentially qualifying for a $2,000 tax credit under certain conditions.
Kinds of Projects That Qualifies For The 45L Credit?
There are several different types of residential projects that qualify for the 45L tax credit, including:
- Single-family residences (custom & tract)
- Multifamily apartment as well as condominium complexes with three or fewer floors above ground and less
- Additional Dwelling Units or ADUs
- Supported living facilities and student housing are two types of accommodation.
- Reconstruction or rehabilitation of a significant scale
45L Requirements for Energy Savings
The 45L credit is $2,000 for housing units that are accredited to have yearly heating along with a cooling energy consumption which should be about 50% less than the yearly heating and cooling consumption from a home that is deemed as a comparable dwelling unit and that has modifications to the building envelope that compensate for at least 1/5 of the 50% decrease in power consumption.
A house is considered as a comparable unit of dwelling when:
- First, it must adhere to the criteria set out in Chapter 4 of the 2006 International Energy Conservation Code, along with any applicable amendments, as of January 1, 2006.
- Second, the efficiency of its heating and cooling equipment must meet the minimum standards established by Department of Energy rules in the National Appliance Energy Conservation Act of 1987 in force at the time of construction.
How is the 45L Tax Credit Claimed
Accreditation is required to ensure that the property complies with certain energy efficiency standards. Additionally, certification must be performed by an independent, competent expert who verifies and certifies, using IRS-approved software, that the property placed fulfills certain energy efficiency criteria. A site inspection is necessary to ensure the energy-saving measures have been installed properly. The tax benefit is claimed on IRS Form 8908, Credit for Energy-Efficient Homes.
Who is Entitled to Get the $2,000 Tax Benefit
The taxpayer seeking the 45L benefit on their tax return should own the qualified project and also have a basis in it during its development. The majority of organizations seeking the 45L credit at the moment are housebuilders and developers.
The IRS language refers to this individual as an “Eligible Contractor”. This is usually difficult since the benefit is granted to the individuals who founded and owned the project all throughout the construction process, not simply to the third-party contractor(s) who were paid to construct it.
A significant criterion of the tax credit is the sale which is the close of escrow or lease based on a signed lease or rental agreement of the home or housing units within the taxable year the benefit is claimed. The credit is generally not accessible to a person eventually dwelling in the house.
What is the Micropas 45L Software Application?
Micropas is an energy modeling program that is used to check conformity with the IRS 45L tax credit's energy efficiency criteria. Micropas was developed by Enercomp as well as CHEERS 45L and it has been utilized by national builders around the country since the 45L tax credit was introduced in 2006.
Micropas has been examined and authorized by the US Department of Energy for 45L tax credit utilization and is included on the DOE's Approved Software list.
The Fundamentals of Claiming the 45L Tax Credit
- 45L Tax Credit Phase I
A free-of-charge examination of the property, including comprehensive engineering takeoffs including modeling using IRS-approved software.
- 45L Tax Credit Phase II
This is a field examination to determine if the property qualifies under IRS and IECC criteria.
- 45L Tax Credit Forms and Certificates
This section contains all of the forms and certifications that must be submitted with the tax return.
- Applicable Fees for 45L Tax Credit
The amount of the fee for the 45L Tax Credit is determined by the number of units eligible for the credit.
The 45L team is comprised of tax and engineering specialists that are trained to do 45L assessments and work with IRS-approved software. Additionally, our team comprises former members of the Big Four accounting firms, a certified energy rater, as well as a former IRS tax lawyer with extensive knowledge in sampling procedures. For developers of large-scale projects, the 45L tax credit can result in considerable tax savings.