Section 45L is a federal tax credit for the development and sale/lease of energy efficient residential dwelling units, including single-family homes, townhomes, and apartments.
The Inflation Reduction Act of 2022 recently extended the Section 45L tax credit through the end of 2032 and increased the amounts available to developers.
For dwelling units sold or leased as of January 1, 2023, the Section 45L federal tax credit requirements and amounts are:
Single-Family Dwelling Units (including traditional side-by-side townhomes and duplexes)
- Each unit certified under the EPA's ENERGY STAR Single Family New Homes Program is eligible for a $2,500 federal tax credit.
- Each unit certified under the DOE's Zero Energy Ready Home (ZERH) Program is eligible for a $5,000 federal tax credit.
Multifamily Dwelling Units (including stacked townhomes and apartment buildings of all sizes)
- Each unit certified under the EPA's ENERGY STAR Multifamily New Construction Program is eligible for a $500 federal tax credit.
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- If also satisfy prevailing wage requirements, that amount is increased to $2,500 per unit.
- Each unit certified under the DOE's Zero Energy Ready Home (ZERH) Program is eligible for a $1,000 federal tax credit.
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- If also satisfy prevailing wage requirements, that amount is increased to $5,000 per unit.
While it may not always be cost-effective for every new dwelling unit to qualify, developers can leverage local utility company energy efficiency rebate programs to offset costs to qualify for the Section 45L tax credit. This is because the requirements for the Section 45L tax credit overlap with the requirements of many local utility rebate programs. By earning ENERGY STAR and/or DOE ZERH certification, developers can earn both the tax credit and receive rebates.
Developers of apartment buildings over three stories may be able to leverage the Section 179D tax deduction to offset costs to qualify for the Section 45L tax credit. Such developers can deduct the cost of energy efficient equipment and materials used to earn ENERGY STAR and/or DOE ZERH certifications and qualify dwelling units in those buildings for the Section 45L tax credit.
