The 45L tax credit is a provision under the Internal Revenue code that allows owners of energy efficient residential buildings to receive substantial tax benefits. Under the American Taxpayer Relief Act of 2012, this credit was extended to December 31, 2013.
Formally codified as Energy Efficient Home Credit IRC §45L, this provision can provide major savings for real estate owners—particularly those owning certain apartment buildings and other larger residential buildings.
In order to qualify for the 45L credit, a residence has to meet four major conditions:
Located in the United States
Substantially completed between August 8th, 2005 and December 31, 2013
Meet the energy savings requirements of the section—this means it must project an annual energy consumption savings of 50%, and certified by an eligible expert
Must be a residence—meaning it must be occupied within the given time range.
Do you Qualify?
One of the exciting aspects of section 45L is that, thanks to modern building techniques and materials, the majority of residences built in recent years meet the energy efficiency requirements—often regardless of whether they were built with the intention of being “green." This is not to say that every recent construction will automatically qualify, but don’t discount the possibility that your property may qualify simply because you didn’t concentrate on energy efficiency. If your building followed current best practices, there’s a good chance you’ll see some tax savings.
What are the Benefits?
Assuming a dwelling meets all of the above conditions, the savings can be substantial. To demonstrate, let’s look at an example. Say your company constructed a condominium complex in New York in that was completed just a few years ago. The structure has 500 units, and between completion of construction and today, all of the units are occupied. The structure was built following best practices, and falls under the IRS’s definition of energy efficient. You fulfill all of the requirements for each of the units, so with a little simple math: 500 units times $2,000 is $1,000,000. The depreciable basis of the condominium would be reduced by $1,000,000—without any extra work on your part.
What's the Process?
We start with a preliminary examination of your building based on information you provide—square footage, mechanical specification, and basic details on the windows, appliances, and insulation. We run a preliminary model of your building using IRS-approved software to get an idea of how your building might perform.
Once that's complete, we conduct a site visit to test the building's duct systems and overall air tightness. We then refine our computer model using the new information to arrive at the final model. Assuming the building passes, we then produce all the necessary documentation needed to claim your tax credits.
MS Consultants offers the combination of engineering and tax expertise to qualify as an eligible certifier under the IRS’s definition, and we’ve got the experience to make going through the process a breeze. If you’re curious as to whether or not your building qualifies for the energy efficient residence credit, contact one of our consultants today to find out how much you might be able to save on your tax bill this year.