With greater concern for the environment and the supply of natural resources that we constantly need and use like fossil fuel and sources of energy and electricity, there is now a growing consensus that one of the ways in which we can mitigate the increasing demand for fuel and energy is through building more energy-efficient homes and buildings. But as the building industry would have it, energy-efficient living spaces and buildings are the option and not the standard, so it is expected that most home builders would not opt to design and build an energy-efficient home. Homebuilders do not advocate for energy-efficient builds because it requires a lot of effort and special materials that may be expensive or too difficult to source. The government tried finding creative ways to encourage homebuilders to invest in energy-efficient housing, and the solution they came up with is called the 45L Tax Credit. This tax credit is meant to provide homebuilders with an incentive to build energy-efficient housing units by crediting a $2000 tax credit for real estate property taxes in the year that the home was leased or sold. For those who build manufactured homes the tax credit was about $1000, which is a very good way to lessen those taxes due from the said property in that given year and then carried over for the next twenty years. Unfortunately, this particular tax credit is not known by many, and since most homebuilders only follow the building standards and codes in their state without a focus on energy efficiency, then not many applications for the tax credit at all. If however, many people would know more about the 45L tax credit, it can surely inspire homebuilders and developers to drive their new builds to be more energy efficient.
How Can 45L Tax Credit Help Builders?
The Internal Revenue Code (IRC) Section 45L is a hidden gem of a tax credit, it really can result in substantial savings in real property tax dues for a given year and for the next years to come. The 45L tax credit is fixed at $2000 per housing unit, if it is a single-family home, then the credit would be $2000 but if the housing complex or apartment building has about 100 units, then that could easily be a $200000 tax savings for one year alone. The tax credit can help builders off-set the expense that was put into the build by making sure that the housing unit is built according to the required energy-efficiency standard which is that the heating and cooling levels of the home uses fifty percent less energy than homes that were built according to the 2003 IECC or the 2006 IECC depending on the year it was built. The tax credit also provides builders with savings that can be invested back into building more homes and units that are energy-efficient. The initial capital outlay for an energy-efficient home or building can be higher than regular or standard builds, but the tax credit can make up for that extra expense in the long run. If builders continue to build energy-efficient homes and housing units, then collectively, clients will be more receptive to buying or choosing homes that use less energy, over time, this could become the norm and not an option. Moreover, those who would rent or buy energy-efficient homes will be able to enjoy lower fuel and electricity costs and there will come a time that people will prefer these homes to the old ones.
How To Apply For 45L Tax Credit?
Applying for 45L tax credit for the first time requires a bit more legwork and effort, but after which, the filing of the tax credits for the next years will be a breeze. Before any claims can be filed or applied for, the home or housing unit needs to be vetted by a third party in order to determine if the building and structure are indeed energy efficient. The third-party contractors are mandated to analyze and inspect the building using the IRS-approved modeling software to determine in the simulation how each home will be able to heat or cool itself throughout the year. Based on this software, the third-party contractors must be able to find evidence that indeed the home or unit uses about fifty percent less energy than comparable houses built according to code. Moreover, the building must also have a building envelop component improvements which at least will decrease energy consumption by 10 percent from similar buildings in the area. Once this required evidence has been established, the third party will issue a certificate of compliance that the building is energy-efficient. After which, the building plans and design blueprints will be inspected and analyzed to determine if everything is according to code and whether there are design elements that made it energy efficient. Once this has been satisfied satisfactorily, only then that the filing for 45L tax credit claims can be done. The tax credit value of $2000 for each unit is then applied to the tax dues of the builder or developer in the same year that the homes were sold or leased.
Where To Find 45L Tax Credit Consultants?
Considering that the qualifying and filing process is a bit tedious and complicated for the average home builder, it is best to hire consultants or a team of experts that can properly handle 45L tax credit filings. There are a few firms that specialize in this little-known tax credit, and they have the knowledge and skills to be able to help you get the full tax credit value. Hiring a consultant for this will increase expenses, but only the first filing is costly, the next ones will be a matter of routine as the home or housing unit has already been certified. The tax credit can then be applied to the succeeding tax returns up to 20 years or until the building is renovated or remodeled which would entail a new certification process. Make sure to work with certified contractors since the IRS policy also requires that the contractors you use for the build have energy-efficient specializations. You can hire from your locality to not complicate things with different cultures and opinions, but if this is not possible, then you can hire someone with an online firm.