Financial advisors and tax professionals working with clients in the real estate and homebuilding industries got the details of the bulked-up credits for energy efficiency from the IRS.
Under last year's Inflation Reduction Act, eligible contractors and real estate developers who build or significantly reconstruct qualifying energy-efficient homes they own, and then sell or lease the property to a resident, could receive a tax credit of up to $5,000, according to guidance released Sept. 27 by the IRS.
With an array of credits relating to clean energy and lower fossil fuel consumption in the law, the Section 45L "new energy efficient home credit" depends on the type of home, the construction timing, compliance with the requirements of the Energy Star and Zero Energy Ready Home programs and, for multifamily properties, the construction workers' prevailing wages.
The law "is lowering utility bills by providing increased incentives to make homes more energy efficient," Deputy Secretary of the Treasury Wally Adeyemo said in a statement after the IRS and Treasury's announcement. "Treasury's guidance provides clarity and certainty to home builders planning construction projects."
READ MORE: 2022 tax planning after the Inflation Reduction Act
The terms can get complicated for homes sold or leased between 2020 and 2022 that could meet the guidelines for tax credits of either $1,000 to $2,000 each based on certain heating and cooling consumption levels. For homes bought or rented between 2023 and 2032, the credits range from $500 to $5,000 each, based on the provisions of the energy efficiency programs.
Those new tax rules could prove more lucrative to multifamily developers of new properties, according to an analysis by global accounting and advisory firm Baker Tilly. Properties with dozens of qualifying units could get credits in the hundreds of thousands of dollars.
