The Energy-Efficient Home Credit (45L Credit) Gets a One-Year Extension
The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively extended the New Energy-Efficient Home Credit, also known as the 45L credit, for 2018, 2019, and 2020. This credit, along with thirty-two other temporary federal tax provisions, were scheduled to expire at the end of 2020. With the President’s signing of the Consolidated Appropriations Act, 2021 on December 27, 2020, a collection of business and individual tax provisions known as the “tax extenders,” which includes the 45L credit, were temporarily reinstated through December 31, 2021.
The 45L credit is a $2,000 tax credit available to eligible contractors that develop energy-efficient dwelling units such as apartments, senior living units or projects, student housing, affordable housing, mixed-use developments, and others that are defined as such by the IRS. As a reminder, a tax credit is a provision that reduces a taxpayer’s tax liability dollar-for-dollar. A tax credit is different from a deduction or exemption, as it reduces taxable income, rather than directly to the taxpayer’s tax liability.
Energy-efficient dwelling units are defined as dwellings located in the United States that meet certain energy-saving requirements established by the 2006 International Energy Conservation Code. And because these energy conservation requirements were established almost 15 years ago, many current developments already meet these standards.
Here is an example that will illustrate the substantial savings for businesses when the 45L credit is applied properly: An eligible contractor builds a 300-unit apartment housing complex that meets all of the aforementioned requirements. and becomes fully occupied shortly thereafter. The potential tax credit for the eligible contractor would be $600,000 ($2,000 per unit for each of the 300 dwelling units). Please note that the depreciable basis of the building would need to be reduced by $600,000, or the amount of the credit claimed.
Sources: RIA Checkpoint, Tax Foundation
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
Comments are closed.