Treasury, IRS issue guidance on energy efficient home credits

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued guidance on a provision of the Inflation Reduction Act focused on energy efficient home credits.

Specifically, the Inflation Reduction Act extended and enhanced the energy efficient home credit (45L) allows home builders who construct, reconstruct, or rehabilitate energy efficient homes a tax credit of up to $5,000 per home.

This guidance provides clarity to home builders on the qualifications for the credit.

“President Biden’s Investing in America agenda is focused on reducing costs for Americans, and the Inflation Reduction Act is lowering utility bills by providing increased incentives to make homes more energy efficient,” Deputy Secretary of the Treasury Wally Adeyemo said. “Treasury’s guidance provides clarity and certainty to home builders planning construction projects.”

The guidance explains that the value of the home builders credit depends on the type of home and the home’s energy efficiency. For multifamily dwelling units, contractors receive the full $5,000 credit only if construction workers are paid a prevailing wage.

Further, to qualify for the credit, homes must be eligible to participate in certain Energy Star programs and meet applicable energy saving requirements based on home type.

For homes acquired in 2023 through 2032, the credit amount ranges from $500 to $5,000, depending on whether Energy Star or Zero Energy Ready Home program requirements are met. The homes must be certified by a third-party to verify they meet the requirements.

For homes acquired before 2023, the credit amount is $1,000 or $2,000, depending on the standards met. The standards include certifying that the home has an annual level of heating and cooling energy consumption that is at least 50 percent (or 30 percent for certain manufactured homes) less than that of a comparable home that meets certain energy standards. Building envelope component improvements must account for at least 1/5 (or 1/3 for certain manufactured homes) of the reduction.