Revisit 45L Tax Credits for Residential and Senior Living Developers

  • Tax strategies
  • 2/25/2020
Couple in new home

The Taxpayer Certainty and Disaster Tax Relief Act of 2019 retroactively extends the 45L credit, which permits eligible contractors or developers to claim a tax credit on projects that include the building of a qualified home.

As we closed out the decade and anticipated the start of the 2020s, single family, multifamily and senior housing developers received some good news. The Taxpayer Certainty and Disaster Tax Relief Act of 2019 was signed into law by the president on Friday, December 20, 2019. The legislation included retroactively extending the New Energy-Efficient Homes Tax Credit (the 45L credit) for 2018, 2019, and 2020. The 45L credit permits eligible contractors or developers to claim a tax credit when building a qualified dwelling or home.

The fundamentals of the 45L credit have not changed, but it’s a great time to review them. The 45L credit is a $2,000 credit available to eligible contractors that develop energy-efficient dwelling units. Dwelling units can be apartments, senior living units or projects, student housing, affordable housing, mixed-use developments, and other projects as defined by the IRS. The buildings must be three stories or less, and constructed and sold or leased by December 31, 2020. Energy-efficient dwelling units are defined as dwellings located in the United States that meet certain energy-saving requirements established by the 2006 International Energy Conservation Code. Because these energy conservation requirements were established more than 10 years ago, many current developments already meet these standards.

Let’s look at an example that illustrates the potential impact of the 45L credit for the owner or developer of qualified units:

A company builds a 600-unit apartment complex that meets all of the above conditions and that was completed and had all units occupied in 2019. Assuming the company meets the definition of an “eligible contractor” and the buildings meet the energy reduction requirements, the potential tax credit for the company would be $1.2 million ($2,000 per unit for each of the 600 units). As part of the 2019 credits claimed, the depreciable basis of the building would also be reduced by $1.2 million.

As you can see in this example, there can be substantial savings for businesses when the 45L credit is applied properly.

How we can help

At CLA, we can work independently to complete the required testing and appropriate filings with the IRS. Our 45L tax credit study includes an analysis of drawings and buildings specifications, energy simulation modeling using IRS-approved software, and site inspection under the direction of certified personnel. CLA can review building drawings and specifications to determine the potential benefit and certification costs for a specific dwelling or group of dwellings. Our CPAs and engineers specialize in construction and real estate, and work with you to identify and document qualifying energy credits.

Taking advantage of the 45L credit requires specific capabilities, and we have the skills and experience to identify the eligible credits, collect supporting information, and submit the required tax forms. If you’re interested in finding out whether the 45L credits are available for your company, we’d love to assist you.

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