IRS Offers Updated Guidance on Tax Credit for Energy-Efficient Homes

On Sept. 27, the Internal Revenue Service issued a notice providing guidance on the New Energy Efficient Home Credit found in Section 45L of the Internal Revenue Code.

The Inflation Reduction Act of 2022 amended Section 45L to provide eligible contractors with a tax credit for eligible new or substantially reconstructed homes that meet applicable Energy Star home program or U.S. Department of Energy Zero Energy Ready Home (ZERH) program requirements. The credit amount is contingent on which set of energy-saving requirements the home meets, and is $500, $1,000, $2,500, or $5,000.

The new Section 45L provisions include two tiers of credits, with the higher credits for eligible homes and dwelling units certified to applicable ZERH program requirements. The 45L tax credit is $5,000 for single-family and manufactured homes eligible to participate in the Energy Star Single Family New Homes Program or the Energy Star Manufactured New Homes Program, respectively, and which are certified to applicable ZERH program requirements.

For multifamily, the 45L tax credit is $1,000 for dwelling units that are part of a building eligible to participate in Energy Star's Multifamily New Construction Program and which are certified to applicable ZERH program requirements—unless the project meets prevailing wage requirements, in which case the tax credit is $5,000 per unit.

The amended 45L tax credit applies to qualified energy-efficient homes acquired after Dec. 31, 2022, and before Jan. 1, 2033, for use as a residence during the taxable year.