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§45L Tax Credit

Detailed §45L Tax studies by the experts to maximize depreciation.

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§45L Energy-Efficient Home Credit

The Section 45L tax credit offers developers a means to offset the costs associated with building energy-efficient single family or multifamily properties. The credit provides a dollar-for-dollar offset against taxes owed or paid in the tax year in which the property is sold or leased.

With the passing of the Inflation Reduction Act, Section 45L has been extended for 10 years through 12/31/2032.

Units leased or sold prior to 2023 are compared to the IECC 2006 standards. 

Units leased or sold starting from 2023 will have to be Energy Star certified to avail the §45L tax credit.

To qualify for the coveted 45L tax credit in a post-2022 landscape, businesses and homeowners must now prioritize energy consulting during the design phase of their projects.

This shift underscores the growing importance of sustainable construction and renovation practices, as energy-efficient designs not only reduce environmental impact but also lead to substantial cost savings in the long run. By incorporating energy efficiency consulting early in the process, individuals and businesses can maximize their eligibility for tax incentives while contributing to a greener, more sustainable future.

45l tax credit

What is the §45L Tax Credit?

The 45L tax credit provides a financial incentive for developers, builders, and homeowners to construct or renovate energy-efficient homes. Eligible properties can be single-family homes, townhouses, condominiums, or apartment buildings with no more than three stories above grade. To qualify for the credit, the dwelling units must meet certain energy efficiency standards, which are usually determined by comparing the energy consumption of the property to that of a reference property built according to the standards set by the International Energy Conservation Code (IECC).

The credit amount is up to $2,000 per eligible dwelling unit for new energy-efficient homes and up to $1,000 per eligible unit for qualified energy-efficient improvements in existing properties. The credit is available to the property owner or developer who constructed or renovated the property, not to the eventual homebuyer.

Who Can Benefit from the §45L Tax Credit?

Single-family Homebuilders or multifamily developers can benefit from the Section 45L Tax Credit.

Which Energy-Efficient Buildings Qualify for the §45L Tax Credit?

The following energy-efficient buildings leased or sold through qualify for the Section 45L tax credit:

481a adjustment

Units leased or sold in 2023 and later switch to ENERGY STAR or Zero Energy Ready Home standards with an increase in tax credit to $2,500 or $5,000. ENERGY STAR certification is the pathway to qualify for the 45L tax credit, and a prerequisite to Zero Energy Ready Home certification.

ENERGY STAR certified homes are energy efficient, provide better comfort, and help in reducing carbon emissions and utility costs. ENERGY STAR certification is also a requirement for various financing options, incentives and rebates.

§ 45L – Pre vs Post IRA

§ 45L – PRE IRA

§ 45L – PRE IRA

Effective Dates

  • Dwelling Units leased/sold before 1/1/2023
  • 1/1/2023-12/31/2032

Qualifying Criteria

  • 50% savings compared to 2006 IECC standards; 10% savings from building envelope
  • Energy Star
  • Zero Energy Ready Home (ZERH)

Tax Credit per Unit

  • $2000
  • $500 or $2,500 for Energy Star
  • $1,000 or $5,000 for ZERH

Prevailing Wage

  • Not Required
  • Required for Multifamily Projects
  • Single Family Homes, Duplexes, and Townhomes are exempt

# of Stories

  • Limited to 3 stories or less, above grade
  • No limitation on the number of stories
  • ZERH certification limited to 5 stories until the end of 2023.
45l tax credit

What Qualifies As An ENERGY STAR Certified Home?

With quality construction from the ground up, you’ll enjoy peace of mind knowing your highly efficient home is built to a high standard of construction for enhanced durability – and a lifetime of memories. Combine that with being a good investment, and ENERGY STAR homes are an excellent choice for your comfort and your bottom line.

ENERGY STAR certified new homes are energy efficient by design, with savings that start now and continue into the future. Better systems and construction features make all the difference throughout your home. ENERGY STAR certified homes are at least 10 percent more energy efficient than standard new homes built to code—and even more efficient when compared to existing homes.

§45L Tax Credit for Single Family New Homes (Single-family, duplexes, and townhomes)

Multi-Family New Construction

ENERGY STAR

Zero Energy Ready Home

$2,500/unit

$5,000/unit

§45L Tax Credit for Multifamily New Construction

Multi-Family New Construction

(Meets prevailing wage requirement)

ENERGY STAR

(No limit on stories)

Zero Energy Ready Home

(5 stories or less)

$2,500/unit

$5,000/unit

Multi-Family New Construction

(Does not meet prevailing wage requirement)

ENERGY STAR

(No limit on stories)

Zero Energy Ready Home

(5 stories or less)

$500/unit

$1,000/unit

Energy Star Certification Process

The certification process provides flexibility to select a custom combination of measures for each home that is equivalent in performance to the minimum requirements of the ENERGY STAR Reference Design Home, as assessed through energy modeling.

An EPA-recognized Home Certification Organization (HCO)’s Approved Software Rating Tool shall automatically determine the ENERGY STAR ERI Target, which is the highest ERI value that each rated home may achieve to earn the ENERGY STAR.

The preferred set of efficiency measures for the home to be certified are modeled to verify that the resulting ERI meets or exceeds the ENERGY STAR ERI Target.

The Rater must review all items on the National Rater checklists.

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Our §45L Insights

Frequently Asked Questions

What is the 45L tax credit?

45L Energy Efficient Home Credit rewards builders and homeowners for constructing or substantially renovating energy-efficient homes.

How much is the credit worth?

The tax credit could be in the range of $500 – $5000 per unit for dwelling units placed in service starting from 2023.

Who is eligible for the credit?

Builders and developers who construct or renovate residential properties.