October 19, 2023
IRS releases details on claiming IRC Section 45L credit for new energy-efficient homes
In Notice 2023-65, the IRS gives details on the requirements for claiming the IRC Section 45L credit for new energy-efficient homes. The IRC Section 45L credit, which was modified by the Inflation Reduction Act, allows eligible contractors a tax credit of up to $5,000 per home that they construct or substantially rehabilitate and then sell or lease during the tax year for which they are claiming the credit.
The credit applies to new energy-efficient residences acquired after December 31, 2022, and before January 1, 2033. Residences acquired in 2022 can apply the credit under former IRC Section 45L.
Notice 2023-65 describes who is eligible for the credit; the credit amount; and energy savings, certification and substantiation requirements.
Definition of contractor
Notice 2023-65 defines an eligible contractor as the person that constructed, or substantially reconstructed and rehabilitated, a qualified home in the United States and owned and had a basis in the qualified home during its construction. For a manufactured home, an eligible contractor is the person that produced the home and owned and had a basis in the home during its production (not the third-party contractor that constructed the home).
The IRC Section 45L credit is based on meeting the (1) Energy Star program requirements, (2) Zero Energy Ready Home program requirements, and (3) prevailing wage requirements (for multifamily dwelling units). For more information on the prevailing wage requirements, see Tax Alert 2022-1832.
Single family homes
The credit is:
The credit, per dwelling unit, is:
The homes must be certified under the applicable energy savings program. Notice 2023-65 gives specific instructions for all the energy programs that may apply and examples of how to comply with the requirements.
Eligible contractors must meet the general recordkeeping requirements under IRC Section 6001 to substantiate that they have met the IRC Section 45L credit requirements. They must maintain certifications, records with details about the qualified homes and prevailing wage records (if applicable).
For manufactured homes sold by eligible contractors to dealers, the eligible contractor may rely on a statement by the dealer with the applicable information.
Single home and multifamily home builders now have clear guidance on how to qualify for the IRC Section 45L credit. The higher expense in complying with and documenting the new requirements may be offset by the credits. In addition, the prevailing wage and apprenticeship requirements only apply to multifamily buildings. Manufactured and modular home builders are ideally positioned to take advantage of the credit because of the ability to incorporate the requirements into the manufacturing process, especially for Zero-Energy-Ready-certified homes, which are eligible for the highest credit.
Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor