45L Tax Credit


About the §45L Tax Credit
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the Energy Efficient Home Credit which offers a 45L tax credit of $2,000 per dwelling unit to developers of 45L energy efficient residential buildings completed after August 8, 2005.

Eligible Apartment Buildings, Condos, & Single Family Home Developments For 45L
A dwelling unit should provide a level of heating and cooling energy consumption that is significantly less than certain 2004 energy standards. Based on current construction trends and local building codes, many developments already exceed these standards for 45L.

45L Benefits
30 qualified 45L units = $60,000 in tax credits
60 qualified 45L units = $120,000 in tax credits
100 qualified 45L units = $200,000 in tax credits
200 qualified 45L units = $400,000 in tax credits
500 qualified 45L units = $1,000,000 in tax credits
1000 qualified 45L units = $2,000,000 in tax credits

Ideal Candidates for 45L
All apartment buildings, residential condominiums, and single family home developments completed on or after August 8, 2005 with 10 or more units are worth assessing for 45L energy tax credits. Eligible construction also includes substantial reconstruction and rehabilitation. Additionally, IRC 45L allows for a $1,000 or $2,000 tax credit for manufactured homes that meet the criteria.

45L Tax Credit


What is the 45L Tax Credit?

The 45L Tax Credit is a federal tax credit designed to reward multifamily developers and homebuilders who take part in constructing energy-efficient homes. The tax credit can be worth up to $5,000 per dwelling unit, depending on the home type, number of stories, and the energy efficiency requirements that are met.

Starting in 2023, the Inflation Reduction Act expanded the 45L tax credit by increasing the credit amount, removing certain restrictions, and making 45L easier to utilize. The credit also now applies to dwelling units within buildings of all sizes. Previously, the credit was limited to a maximum of $2,000 per unit and only dwelling units located within low-rise residential buildings were eligible. Under the new rules, a 100-unit development could result in tax credits totaling $500,000. Call one of our 45L experts today to find out if your development qualifies!

From 2023 to 2032, 45L Tax Credits

  • Range from $2,500 to $5,000 when the development is subject to Davis Bacon Wages
  • Apply to all multifamily buildings and no longer have a 3-story height restriction
  • Can be used simultaneously with the 179D Deduction on all buildings that are four stories or greater
  • Are easier to plan for and monetize, given the 10-year extension
  • Are more accessible for developments focused on energy-efficiency

Who is Eligible for 45L?

To be eligible to receive the credit, developers must construct or substantially reconstruct qualified energy-efficient homes. They may hire contractors to construct the dwelling units on their behalf but must have basis in the development during its construction. Upon construction completion, eligible developers must also then sell or lease the dwelling units to homeowners or tenants for use as a residence.

How to Claim Section 45L

To claim Section 45L tax credits, eligible developers must obtain a certification from a qualified third-party verifier, like KBKG. The certification involves pre-construction planning and begins prior to construction breaking ground. Milestone inspections and diagnostic testing of the dwelling units are also necessary to meet the requirements under Internal Revenue Code Section 45L.

“Every residential developer should consider 45L tax credits as part of their tax reduction strategy“

What are the Benefits of the 45L Tax Credit?

The Energy Efficient Home Credit offers a tax credit of up to $5,000 per dwelling unit to developers of energy efficient buildings. Below is a sample of expected benefits based on the number of qualified dwelling units.

$200,000 in 45L Tax Credits

50 qualified units

$500,000 in 45L Tax Credits

100 qualified units

$5,000,000 in 45L Tax Credits

1,000 qualified units

45L Tax Insights

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