Everything You Need to Know About 45L Tax Credit

The real-estate market is thriving, despite the slump in the economy this past year, people will always need a place to live or conduct their business. Those engaged in the business of real-estate properties whether renting or selling single family homes, apartments, commercial buildings and others can always rely on leasing out or selling their properties, and with it also comes tax liabilities for each property. There is however an important resource that anyone in the real-estate business can take advantage to lessen the amount of taxes due in a given year. This is called the 45L tax credit, which is a little-known tax credit that actually provides for a $2000 credit for each property that was rented, leased or sold in the taxable year.

The tax credit is deducted from the total taxes due on the property and is therefore a dollar-for-dollar value. It is applicable for the year applied for and then is carried over for the next 20 years, which means that you get a savings of two thousand dollars every year for each property. This tax credit however can only be applied for by buildings, homes, apartments and other real-estate property that is energy efficient, which means that it is built and designed in such a way that it uses less fuel and electricity by fifty percent from the same structures built according to code. The said tax credit is difficult to file a claim on for old buildings but if you are renovating or building a new one, it is a wise decision to incorporate green or ecological designs and features to the structure. Most builders do not take this into consideration as it would entail using expensive materials or a more tedious build, but the potential for saving a lot of money in taxes is worth the effort. 

What is 45L Tax Credit? 

The 45L Tax Credit is provided for by The Internal Revenue Code (IRC) Section 45L, it is a not-so-well-known tax credit that provides developers a way of offsetting the costs incurred in building homes and apartment complexes that are energy efficient. The tax credit value is taken out from the taxes owed or paid in the same tax year that the property got rented or purchased. The tax credit is a magnanimous $2000 for each dwelling unit for each newly built home that is certified as energy efficient that was constructed by an eligible contractor and then acquired by the tenant or owner for use as a residence during the current tax year. For manufactured homes, the 45L tax credit is set at $1000, the credit can also be applied to amended tax returns or it can be carried for the next twenty years. The tax credit was designed to provide builders with a relief amount that can also be used to motivate them to build more energy-efficient homes.

The long-term goal is to encourage builders to build structures that utilizes less energy in order to stave off the increasing demand for fuel and electricity and maybe in the years to come lessen our carbon footprint. It is a reality though that even with the advantages of making an energy-efficient home, it is a new concept that means more work for the contractors and only a handful of contractors are accredited and eligible to build them. This would mean an increase in the building cost, which to most is a prime concern. The tax credit is meant to provide an incentive to those who took the effort and the expense in building an energy-efficient home. 

How To Qualify For 45L Tax Credit? 

In order to qualify for the 45L tax credit, the property must first be inspected and analyzed by a certified third-party provider to conform to the IRS-approved energy-efficient design. The certified third-party will use the IRS-approved modeling software to determine if the home or structure is indeed energy efficient. As defined by the IRS policy, the building must be certified to provide heating and cooling levels that uses only half of what is considered according to the code of standards using the 2003 IECC or the 2006 IECC in reference to the year that the property was leased or sold. Aside from which, the building must also have what is referred to as building envelope component improvements that makes the energy consumption of the building at least ten percent lower than that of a similar building or home unit.

All of this process ensures that the dwelling is indeed energy-efficient and after such certification, the builder can then apply for the tax credit for every year up to 20 years after. This would mean a total of $40000 savings to build an energy-efficient home or living space, which is a great incentive on top of the fact that those who will live in the space will consume less fuel and electricity which by in itself is also a great savings. 

Who Can Apply for 45L Tax Credit? 

Homebuilders of single-family homes that either build from the ground up to those who flip old properties and sell newly renovated homes and those big developers that design and construct multi-family home units in a building or complex can benefit from the 45L tax credit. As long as the builders and developers can have their properties certified as energy-efficient as required by the IRS, then any of the following structures can qualify for the tax credit: residential condominiums, apartment buildings, affordable housing units, renovated and remodeled residential buildings, student dormitories and assisted living facilities among others. Basically, any type of residential structure can apply for the tax credit as long as it meets the requirement of providing heating and cooling costs at fifty percent below that of the regular builds.

The application process is quite tedious and will need the involvement of a third-party firm or consultant to assist you with the inspection and certification process, as well as drawing up the reports and plans that serve as evidence that energy-efficient materials and designs were used in the build. However, the certification only occurs at one time during the first filing of the claims for the 45L tax credit.