Notice 2023-65: New Guidance on §45L Energy Efficient Home Credit
Section 45L Energy Efficient Home Credit was extended and amended by the Inflation Reduction Act. The qualifying criteria and the tax credit amounts were modified for homes acquired (leased or sold) from 1/1/2023.
Key points from the Inflation Reduction Act:
- Energy Star or Zero Energy Ready Home (ZERH) Certification is the pathway to qualify for § 45L tax credit, effective 1/1/2023.
- Single Family and Manufactured Homes: Credit increased to $2,500 for Energy Star and $5,000 for ZERH
- Multifamily: Tax credit of $500/unit for Energy Star and $1,000/unit for ZERH; Tax Credit increases to $2,500 for Energy Star and $5,000 for ZERH, if prevailing wage requirements are met.
- Eliminates the requirement to reduce the LIHTC eligible basis by the Section 45L credit.
On September 27, 2023, IRS issued Notice 2023-65 which provides guidance and clarity on the certification requirements, eligible program versions under Energy Star and ZERH, exceptions to reducing the tax basis, and substantiation requirements.
Highlights of Notice 2023-65 and Energy Star/ZERH program requirements:
- In the case of a single-family or multifamily unit, the eligible contractor is the person that has ownership and basis during construction and sells or leases the unit to the end-user.
- In the case of a manufactured home, the eligible contractor is the person that produces the homes and has ownership and basis during production.
- Certification as per the rules of Energy Star or ZERH is a requirement to be eligible for 45L tax credit.
- Substantiation Requirements:
- Retain the Energy Star or ZERH certificate including the date of certification.
- Records to establish the address of the qualified home, taxpayer’s eligibility to avail the credit, and proof of sale or lease.
- Multifamily developers: To be eligible for the $2,500 or $5,000 tax credit, maintain records of meeting or exceeding prevailing wages for construction as per the Davis-Bacon Act.
§ 45L for Single-Family Homes (includes duplexes and townhomes):
- Applicable Versions for Energy Star:
- Homes acquired before 1/1/2025: Energy Star SFNH National Program Version 3.1 and applicable regional program requirements.
- Homes acquired starting from 1/1/2025: Energy Star SFNH National Program Version 3.2 and applicable regional program requirements.
- California, Florida, Hawaii, Oregon, and Washington must be certified under the regional program requirements as shown on the Energy Star website.
- Program Version for homes acquired in 2026 will be determined on/after January 2024.
- Applicable Versions for Zero Energy Ready Home:
- Homes with permit date on/after 1/1/2023: ZERH Version 1.
- Homes with permit date on/after 1/1/2024: ZERH Single Family Version 2.
- Homes in California will be certified under CA Version 1 (permit date before 1/1/2024) and CA Single Family Version 2 (permit date on/after 1/1/2024)
§ 45L for Multifamily New Construction:
- Applicable Versions for Energy Star:
- Homes acquired before 1/1/2027: Energy Star MFNC National Program Version 1.1
- California, Florida, Hawaii, Oregon, and Washington must be certified under the regional program requirements as shown on the Energy Star website.
- Applicable Versions for Zero Energy Ready Home:
- Homes with permit date on/after 7/20/2017: ZERH Version 1 (Limited to 5 stories)
- Homes with permit date on/after 1/1/2024: ZERH Multifamily Version 2 (No limitation on number of stories)
- Dwelling units in California will be certified under CA Version 1 (permit date before 1/1/2024) and CA Multifamily Version 2 (permit date on/after 1/1/2024)
