Internal Revenue Service Issues Guidance on Section 45L Expanded Energy Efficient Home Credit

The Internal Revenue Service (IRS) released Notice 2023-65 to provide guidance on the new energy efficient home credit under § 45L of the Internal Revenue Code, as amended by the Inflation Reduction Act (IRA) of 2022. The provision, as amended by the IRA, allows a tax credit of up to $5,000 per home to eligible contractors who construct or substantially reconstruct and rehabilitate qualified new energy efficient homes. The actual amount of the credit depends on eligibility requirements such as the type of home, the home’s energy efficiency, and with respect to multifamily dwelling units, whether prevailing wage requirements are met. The amendments made by § 13304 of the IRA apply to qualified new energy efficient homes acquired after December 31, 2022.

The guidance provided in this Notice addresses the following:

• Persons eligible for the credit:
  • To qualify, eligible contractors must construct, or substantially reconstruct and rehabilitate, a qualified new energy efficient home located in the United States. They must own the home during the construction, and they must sell or lease the home to a person for use as a residence.
• The calculation of the applicable amount of the credit:
  • The “applicable amount” is:
    • $2,500, in the case of a dwelling unit that is eligible to participate in the Energy Star Residential New Construction Program or the Energy Star Manufactured New Homes Program and meets the requirements of § 45L(c)(1)(A) [and does not meet the requirements of § 45L(c)(1)(B)];
    • $5,000, in the case of a dwelling unit that is eligible to participate in the Energy Star Residential New Construction Program or the Energy Star Manufactured New Homes Program and meets the requirements of § 45L(c)(1)(B);
    • $500, in the case of a dwelling unit that is part of a building eligible to participate in the Energy Star Multifamily New Construction Program and meets the requirements of § 45L(c)(1)(A) [and does not meet the requirements of § 45L(c)(1)(B)]; and
    • $1,000, in the case of a dwelling unit that is part of a building eligible to participate in the Energy Star Multifamily New Construction Program and meets the requirements of § 45L(c)(1)(B).
  • The energy saving requirements:
    • The energy saving requirements incorporate certain Energy Star program requirements and certain Zero Energy Ready Home program requirements. For homes acquired in 2023 and after, the Energy Star website provides details for the minimum Energy Star program versions eligible under § 45L, and the Department of Energy provides details for the relevant Zero Energy Ready Home program in effect.
  • The certification requirements:
    • For homes acquired in 2023 through 2032, certifications achieved and standards met include:
      • Energy Star program requirements
      • Zero Energy Ready Home program requirements
      • Prevailing wage requirements (for multifamily dwelling units only)
    • The substantiation requirements:
      • Generally, an eligible contractor claiming a credit under § 45L must meet the general recordkeeping requirements under § 6001 to substantiate that the requirements of § 45L have been met.

For homes acquired before 2023, the credit amount is $1,000 or $2,000, depending on the standards met, which include:

• Certifying that the home has an annual level of heating and cooling energy consumption that is at least 50% (or 30% for certain manufactured homes) less than that of a comparable home that meets certain energy standards, with building envelope component improvements accounting for at least 1/5 (or 1/3 for certain manufactured homes) of the reduction.
• Meeting certain federal manufactured home rules.

Please contact our Ryan tax professionals for more information about how you can benefit from this valuable credit.

TECHNICAL INFORMATION CONTACT:

Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.