What is 45L Tax Credit?

The 45L Energy Tax Credit is a federal incentive designed to promote energy-efficient residential construction. Originally established under the Energy Policy Act of 2005, this credit provides builders, developers, and contractors with a tax credit of up to $5,000 per dwelling unit for newly constructed or significantly renovated energy-efficient homes that meet specific criteria.

Eligibility for the 45L Tax Credit

To qualify for the 45L tax credit, the property must:

✅ Be a residential dwelling

✅ Meet energy efficiency standards

✅ Be owned by an eligible taxpayer

What are the Benefits of the 45L Tax Credit?

• Significant Tax Savings – Builders and developers can claim up to $5,000 per qualifying unit for homes constructed after 2023.

• Encourages Sustainability – Incentivizes energy-efficient building practices that reduce energy consumption and environmental impact.

• Retroactive Claims – In some cases, developers can claim the credit for past projects completed within the eligible timeframe by amending prior tax returns.

45L Tax Credit & Cost Segregation

While the 45L tax credit focuses on energy efficiency, cost segregation helps accelerate depreciation on real estate investments. Combining both strategies can lead to substantial tax savings for developers and property owners:

• Cost Segregation identifies shorter-life assets that qualify for accelerated depreciation.

• 45L provides an immediate tax credit for energy-efficient improvements, reducing taxable income.

• Together, they optimize cash flow, allowing property owners to reinvest in future projects.

How to Claim the 45L Tax Credit

1. Conduct an energy audit – A certified third-party must verify that the property meets efficiency standards.

2. File IRS Form 8908 – This form is used to claim the 45L tax credit.

3. Consult with a tax professional – Ensuring compliance and optimizing tax benefits often requires expert guidance.

   
   

Conclusion

The 45L Energy Tax Credit is a valuable incentive for developers and builders committed to energy-efficient construction. When paired with cost segregation, it can further enhance tax savings, making real estate projects more financially sustainable. If you're constructing or renovating residential properties, consulting with a tax professional can help you determine eligibility and ensure you take full advantage of this credit.

Interested in pairing 45l tax credit with cost segregation? Find a qualified cost segregation firm to guide you through the process!