45L Tax Credit Extends Through 2021

May 04, 2021

By Eric Olsen

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.

About Eric Olsen

Eric Olsen is a Partner in the Private Business 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.