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45L Tax Credit Extends Through 2021

May 4, 2021

Real estate developers received welcome news before the end of 2020 when the IRC Sec. 45L tax credit -- which was scheduled to expire on December 31, 2020 -- was extended through December 31, 2021 by the Consolidated Appropriations Act, 2021.

IRC Sec. 45L tax credits of up to $2,000 are available for contractors for the construction of new energy-efficient residential units or dwellings that leased or sold.

Qualifying properties include apartments, condominiums, townhouses, and single-family homes. Properties must be three stories or lower and incorporate features that include high R-value insulation and roofing, doors, windows and/or HVAC systems. An unrelated third-party licensed professional is required to complete the certification. 

For single and multifamily dwelling units, the unit must consume at least 50% less energy to offer the same heating and cooling functions as an identical residence that is not energy efficient. In addition to single-family homes, dwellings include apartment buildings, townhouses, condominiums, student housing, and assisted living facilities.

The qualified contractor – typically the developer, builder, or homeowner – is the only person who can claim the IRC Sec. 45L tax credit, and they must own the unit at the time of construction or improvement.

Other requirements include:

  • At least 10% of the energy savings must come from the building envelope.
  • The home must be sold, leased or rented to qualify for the IRC Sec. 45L credit.
  • For individuals, the person must own and have a basis in the qualified energy-efficient home during its construction to qualify as an eligible contractor.

A “person” can also be a corporation, estate, trust, partnership, or association.

Claiming an IRC Sec. 45L tax credit involves complex calculations. For example, there are several methods for obtaining the tax credit depending on the energy-efficiency levels of each project.

It is also important to understand certain limitations and ensure you are meeting all the requirements and getting full credit for the past two years.

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Eric Olsen

Eric Olsen is a Partner in the Private Client Services Group and is responsible for the planning, supervision and execution of the tax returns, in addition to maintaining client relationships and monitoring project deadlines.

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