What is the 45L Tax Credit?

The 45L tax credit incentives builders, developers, and contractors to design and construct energy-efficient homes.  IRS Code Section 45L provides builders and developers with $2,000-$5,000 in tax credits for each qualifying housing unit built or remodeled to certain energy-saving specifications.

The Act also provides an even higher 45L tax credit of $5,000 for single-family and manufactured homes when they are certified as a DOE Zero Energy Ready Home (ZERH).

Originally having expired at the end of 2021, 45L tax credits have been retroactively extended for 2022 through the end of 2032, creating significant benefits for multifamily developers and homebuilders.

For 2022, both the existing energy efficiency criteria and the $2,000 tax credit per dwelling unit will remain unchanged.

In 2023, the tax credit maximum for a dwelling unit in both multifamily and single-family developments has been bumped up to $5,000. Criteria for what is considered “energy efficient” will align with the Energy Star and zero-energy ready home programs from the Department of Energy.

While low-rise residential developments were the only ones eligible for this credit in 2022, residential developments will be eligible for the credit in 2023.

Call Spray Foam Insulators at  to help you maximize these tax credits.

The significant credits will be very beneficial for builders in 2023 that aim to help with the housing shortage and construct dwellings that are more energy efficient.

However, there are some changes to the 45L credit that may make it more difficult for clients to maximize their energy-efficient tax incentives. A key change to alert clients of is that wages for the project that they’re trying to claim credits on, in some cases, must be at or above the local rates determined Secretary of Labor.

45L credits can be claimed for all multifamily developments, including mid- and high-rise projects, which may qualify for:

• 45L tax credits
• 179D tax deductions
• Builders & General Contractors must sign EnergyStar partnership agreement to qualify for tax credit

A few key changes to 45L credits include:

• Prior rules have been extended through December 31, 2022.
• Changes to the rules under the IRA will be from January 1, 2023 – December 31, 2032.
• Low-base credits are $500 per multifamily unit, OR a bonus credit increase to $2,500 per unit if prevailing wage requirements are met.

Congress makes it clear with the passing of the IRA that energy efficiency and climate change are two main points on their agenda. Tax credit and deduction extensions and incentives are increased significantly, allowing for more of your clients to claim them than ever before.

*All states move to EnergyStar 3.1.11 on January 1, 2023*