45L Tax Credit
Early morning February 9, 2018 the Bipartisan Budget Act was Passed providing a One-year retroactive active extension of §179D and §45L energy tax incentive provisions.
This will allow projects placed in service in 2017 to be certified for qualifying energy tax incentives. Though the original expectation was that a 2-year extension would be passed, members of the House Ways and Means committee were reluctant to pass a longer-term bill and are planning on holding hearings later this year to examine which extenders could be removed from a future longer-term package.
Builders and developers can claim this credit for dwelling units (homes and apartments) completed in 2017. The 45L tax credit can be claimed retroactively for earlier buildings back to 2014.
How much is the Tax Credit?
$2000 per dwelling unit. A multi-residential building with 50 units is eligible for $100,000 in tax credits
Multi-family, three stories or less above grade
Apartments, three stories or less above grade
Completed projects do not need to have been built over code as additional HERS inspections can often be taken to achieve the over code requirements of the Federal Tax Credit
Located in the United States.
Construction was substantially completed after August 8, 2005 and before January 1, 2018. Construction includes renovations and rehabilitation.
The residence is a “dwelling” unit that provides complete living facilities for one or more persons within a building that is not more than three stories in height.
Meets the energy savings requirements of Code Section 45L(c). To meet this requirement, the residence must generally be certified in accordance with guidelines prescribed by the IRS to have a projected level of annual heating and cooling energy consumption that meets the IRS standards.
Residences built by an eligible contractor between August 8, 2005 and December 31, 2017. There is no restriction on the property being used as the claimant's principal residence.
Qualifying Residence Requirements
Residences including retrofits must have a projected level of annual heating and cooling energy consumption that meets the IRS standards. Residences are to be built 50% above the 2006 IECC (International Energy Conservation Code).
Since the 45L benchmark was based on earlier standards, most recently built homes and multi-residential buildings already exceed the standards to qualify.
Tax Credit Carry Forward
The unused credit can be carried forward up to 20 years
The 45L tax credit is available to an eligible contractor in the year the certified units/dwellings are leased/sold.
An eligible contractor is the person that constructed a qualified energy efficient home. A person must own and have a basis in the qualified energy efficient home during its construction to qualify as an eligible contractor with respect to the home. For example, if the person that hires a third party contractor to construct the home owns and has the basis in the home during construction, the person that hires the third party contractor is the eligible contractor and the third party contractor is not an eligible contractor. Construction includes substantial reconstruction and rehabilitation.
There is no requirement in Code Section 45L that the property must be a person’s principal residence. Assuming all other 45L tax credit requirements are met, vacation homes, dormitories and hotels might qualify for the credit.
The 45L tax credit also reduces the taxpayer’s depreciable basis.
The 45L credit is an IRC section 38 business tax credit and normally has a one-year carryback and a 20-year carryforward.
Clients can claim the tax credit three years back by amending previous year’s tax return (Form 1040X for individuals, 1120X for corporations) or file an application for tentative refund (Form 1045 for individuals, Form 1139 for corporations). ESB clients must also write "SBJA 2012" at the top of the form used to file the amended return.
An eligible small business (ESB) as defined by the Small Business Jobs Act of 2010, is a corporation whose stock is not publicly traded, a partnership, or a sole proprietorship with an average annual gross receipts for the 3-tax-year period preceding the tax year of the credits cannot exceed $50 million.
45L tax credits are generally not allowable as a credit to offset Alternative Minimum Tax (AMT). The credit will only be able to offset the excesses in net income tax over the alternative minimum tax or 25 percent of the net regular tax liability that exceeds $25,000, whichever is greater. However, any ESB 45L credits earned in 2010 are not subject to AMT limitations and may offset regular and AMT liability.
Allocation of the 45l tax credit is based on the general profit ratio of the partnership. The credit can be specially allocated if all related items of income, gain, loss and deductions with respect to the property that gives rise to the credit are specially allocated in the same manner, and the special allocation is made in accordance with partner’s interest in the partnership or has substantial economic effect.
Energy Efficient New Homes & Apartments
The Energy Efficient Homes Tax Credit (section 45L of the 2005 EPAct tax code) is worth $2000 to builders of homes (including manufactured homes) that are projected to save at least 50% of heating and cooling energy compared to the requirements of the 2006 International Energy Conservation Code (IECC); building envelope components must make up at least one fifth of this improvement. Producers of manufactured homes that meet ENERGY STAR requirements or whose energy use is 30% below the 2006 IECC are eligible for a $1000 credit, with at least one third of this reduction coming from envelope components.
Schultz Energy Consulting can help you determine if your building is eligible for the Federal 45L Tax Credit. Our experienced team of professionals can certify your building and provide all the documentation required by the IRS to claim the credit.
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