45 L Tax Credit

The 45 L Tax Credit is a valuable tool that provides builders and developers with tax credits for residential and apartment buildings. This credit was extended retroactively in late 2019 for 2018 and 2019 thru December 31, 2020. Any unused credits can be carried forward for 20 years.

This tax credit is equal to $2,000 per residential unit or dwelling to the developers of energy efficient buildings. Qualifying properties include apartments, condominiums, townhouses, and single family homes.

Eligible Properties

Qualifying properties are comprised of a dwelling unit or units. A dwelling unit is defined as one or more rooms including a kitchen and designed as a unit for occupancy by one family for the purpose of cooking, living and sleeping. In order to meet the requirements of Section 45L, it must also be 3 stories or less above grade and may include apartments, condominiums, assisted living facilities, student housing dwelling units, townhouses, and single-family homes.

The $2,000 tax credit is achieved for “each” dwelling unit within the buildings.

Types of buildings or projects can qualify for 45L Tax Credits

• Affordable housing (LIHTC)
• Apartment buildings
• Assisted living facilities
• Production home developments
• Residential condominiums
• Student housing
• Substantial reconstruction or rehabilitation

Specific Requirements

Each unit must meet a level of energy efficiency that is higher than 2006 IECC standards. Many newer or rehabbed developments already exceed these standards based on recent energy standards and building codes. We recommend that any apartment or condominium project developed (new construction or rehabilitation) within the past four years to be evaluated for the 45L Tax Credit.

  • Building envelope must account for one-fifth the improvements
  • New construction examples include:
    • Wall insulation must be R-19 or better in the Deep South
    • Quality windows: minimum, Energy Star U-Values in the North and solar heat gain coefficients (SHGC) in the South
  • Rehab requirements include:
    • R-19 or better in wall insulation other than the Deep South
    • Rigid foam board or insulated sheathing is beneficial
    • for HVAC equipment, if walls cant be insulated to T-19, the HVAC efficiency must be at least SEER 14 for a/c and 95%

Taxpayer considerations

  • Typically works best in a 9 percent low-income housing tax credit transaction with excess eligible basis
  • The 45L credit is a IRC Section 38 business credit
  • General business credits generally are not allowable as a credit to offset Alternative Minimum Tax (AMT)
  • The 45L credit reduces the taxpayer’s depreciable basis
  • The credit is claimed on the tax return for the year the dwelling units are leased or sold

You can claim the credit for properties that have been built or remodeled in the past three years.

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