Real estate developers and homebuilders can reduce federal income tax liabilities and meet sustainability goals when constructing or improving multifamily, single family, and manufactured residences to energy efficiency standards through Internal Revenue Code (IRC) Section 45L.

Leveraging and securing Section 45L’s tax benefits effectively, however, requires attention to detail and careful planning.

Confidently navigate the credit’s requirements and complex claims process with guidance from our professionals so you can achieve a beneficial tax outcome.

How Section 45L Provides Tax Benefits

The credit ranges from $500 to $5,000 per residential dwelling unit based on the type of development, applicable Energy Star program, and whether prevailing wage labor rates were paid.

Section 45L can reduce your tax liability dollar for dollar and be applied in conjunction with other income tax deferral strategies, such as a cost segregation or Section 179D Energy Efficient Building Deductions.

Section 45L Tax Credit Per Unit: 2023 Through 2032

The credit values above reflect units acquired – sold, leased, or rented – for the first time as a residence on January 1, 2023 or later. Only the first sale, lease, or rental activity of a residential unit after construction is eligible to generate a credit. For units first acquired prior to this date, single family and multifamily (three stories above grade or fewer) developments are eligible for $2,000 per unit while manufactured homes are eligible for $1,000 or $2,000 per unit depending on the energy efficiency level achieved. Energy efficiency testing for units acquired prior to January 1, 2023 are modeled using IECC 2006 standards and not Energy Star. Section 45L credits may be pursued for projects where units were sold, leased, or rented prior to January 1, 2023, with amended tax return filings.

Confidently Navigate the Claims Process

Manage the complexities of the claims process with guidance from our professionals for your specific tax situation.

• Determine Eligibility. Assess your qualification status by evaluating whether you paid for, or have basis in, the construction of a residential property located in the US that you sell or lease to unrelated parties for use as a residence.
• Conduct Initial Assessment. Determine whether your as-designed features meet minimum Energy Star or Zero‐Energy Ready requirements as a part of the Energy‐Star Single Family or Multifamily programs.
• Achieve Energy Star Certification. Certify your project adheres to Energy Star’s Single‐Family and Multi‐Family New Construction Programs prescriptive compliance path, including owner and contractor registrations, construction checklists, inspections, energy modeling, and submittals for certification.
• Claim the Credit. Claim your Section 45L credit during the year units are first sold or leased to another party for use as a residence. The property’s basis must be reduced by the amount of the credit claimed – increasing taxable gain on sale or reducing basis available for depreciation expenses.

Expansive Tax and Engineering Experience

Deeply immersed in more than 30 industries including construction, real estate, and renewable energy, our professionals provide solutions specific to the nuances, challenges, and operations of the sector in which you work—while customizing plans to meet your unique needs.

To help you streamline the Section 45L energy efficient building tax incentive processes, our team features a range of professionals including professional engineers, energy modelers, CPAs, enrolled agents, and LEED certified individuals specializing in energy efficient buildings.

Our one-firm approach allows your organization to tap into the full resources of our firm, integrating guidance and solutions related to other integral support areas including finance, tax, audit concerns, wealth management, and more.