Can You Claim Previous Improvements for the Section 179D Tax Deduction?
It’s not too late to claim deductions for improvements made in previous years as well. For commercial building owners, improvements made after January 1, 2006 are eligible, and benefits can still be captured on a look-back basis.
Property owners can claim these deductions using an accounting method change when filing current-year tax returns without needing to amend previous returns.
For designers, benefits can be claimed for the current year and any open tax years, approximately three years back, by filing an amended tax return.
Section 45L Tax Credit
The energy efficient home tax credit under Section 45L has been in place since 2005 and recently extended to include tax years ending prior to December 31, 2021.
The $2,000 per dwelling unit credit is for contractors who constructed, manufactured, or substantially renovated energy efficient single or multifamily—three-stories or less—residential dwelling units that are then sold, leased, or rented for the first time as a residence.
It’s also available for prior open tax years—typically two to three years back—by filing an amended income tax return.
How Is Energy Efficient Defined for the Section 45L Tax Credit?
The dwelling unit must be tested and certified to have a projected level of at least 50% reduction of heating and cooling energy consumption to that of a reference property in the same climate zone.
The dwelling unit must also include building envelope—such as insulation or energy efficient windows—and component improvements that provide for a level of heating and cooling energy consumption reduction of at least 10% on their own.
Who Can Qualify as Contractors for the Section 45L Tax Credit?
Eligible contractors are defined as those who constructed the energy efficient residential dwelling unit and both own and have a basis in the property during its construction.
This can include any of the following that hire a third-party contractor to complete the work:
- Company or corporation
What Types of Property Qualify for the Section 45L Tax Credit?
Qualifying properties include:
- Single-family homes
- Multifamily townhomes, condominiums, duplexes, and apartments that are three-stories above grade or less not including below-grade parking
- House boats
- Trailer homes
- Manufactured homes—eligible for $1,000 credit with a 30% reduction
Properties can be primary or vacation residences and must be:
- Newly constructed or sustainably renovated
- Located in the United States
- Substantially completed between August 8, 2005 and December 31, 2021
Consider a 150-unit multifamily residential facility completed in tax year 2020 that has 137 units that were rented, leased, or sold during the contractor’s same tax year.
A sampling of the 137 newly transferred units all passed the energy efficiency testing and upon certification are eligible for a total tax credit of $274,000. The remaining units could also be eligible for the credit in the tax year they are rented, leased, sold, or otherwise transferred for the first time.
Engineering and Financial Expertise
To help you streamline the Section 179D and 45L energy efficient building tax incentive processes, our team features a range of professionals including licensed contractors, professional engineers, CPAs, enrolled agents, and LEED certified individuals specializing in energy efficient buildings.
Guidance from our professionals has saved taxpayers millions of dollars through these deductions and credits, and we offer support throughout the entire process—from the design phase through the final punch list.