IRS: Builders of qualified new energy efficient homes may qualify for an expanded tax credit under Section 45L


IR-2023-180, Sept. 27, 2023

WASHINGTON — The Internal Revenue Service issued Notice 2023-65 PDF today which provides guidance on the new energy efficient home credit as amended by the Inflation Reduction Act (IRA).

The provision, as amended by the IRA, allows eligible contractors who construct or substantially reconstruct and rehabilitate qualified new energy efficient homes a tax credit of up to $5,000 per home. The actual amount of the credit depends on eligibility requirements such as the type of home, the home's energy efficiency, and with respect to multifamily dwelling units, whether prevailing wage requirements are met.

Individuals or entities looking to claim the credit should consult with a tax professional to determine whether and how they can claim the credit and determine whether the credit can be used with other tax incentives or Federal incentives.

Eligibility for eligible contractors

To qualify, eligible contractors must construct or substantially reconstruct and rehabilitate a qualified new energy efficient home located in the United States. They also must own the home and have a basis in it during the construction, and they must sell or lease the home to a person for use as a residence.

Requirements and credit amounts for 2023 and after

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 the certification achieved and standards met, which include:

  • Energy Star program requirements
  • Zero Energy Ready Home program requirements
  • Prevailing wage requirements (for multifamily dwelling units only)

Energy Saving Requirements

The energy saving requirements incorporate certain Energy Star program requirements and certain Zero Energy Ready Home program requirements. For homes acquired in 2023 and after, refer to the tables on the Energy Star website for the minimum Energy Star program versions eligible under section 45L. For more information on the relevant Zero Energy Ready Home program in effect, refer to the Department of Energy DOE Zero Energy Ready Home (ZERH) Program Requirements.

Requirements and credit amounts before 2023

For homes acquired before 2023, the credit amount is $1,000 or $2,000, depending on the standards met, which include:

  • Certifying that the home has an annual level of heating and cooling energy consumption that is at least 50% (or 30% for certain manufactured homes) less than that of a comparable home that meets certain energy standards, with building envelope component improvements accounting for at least 1/5 (or 1/3 for certain manufactured homes) of the reduction.
  • Meeting certain federal manufactured home rules