The New Energy-Efficient Home Credit for Contractors

Great news for eligible contractors! The new energy-efficient home credit, as defined by Internal Revenue Code (IRC) §45L, has returned. This previously expired credit has been amended under the Inflation Reduction Act of 2022, as well as IRS Notice 2023-65, to include qualified new energy-efficient homes that were sold or leased after 2021 and before 2033. This means that the credit will be applied retroactively to the 2022 tax year and will be available for all qualified homes acquired before December 31, 2032. So, if you are a contractor who deals with new energy-efficient homes, this could be a great opportunity for you to take advantage of the credit and increase your profits.

Credit Amounts

 For homes acquired during 2022, the credit amount is $1,000 or $2,000 depending on the requirements met. For homes acquired from 2023 through 2032, the tax credit amount can range from $500 to $5,000, depending on the certification achieved and requirements met. These credits are available per qualifying home, which means that you can claim a credit of up to $5,000 for each qualifying home acquired during the tax year.

Eligibility and Requirements

To qualify for the credit, contractors must construct a new energy-efficient home that meets certain criteria. In this case, the term “construct” also includes substantial reconstruction and rehabilitation. Moreover, eligible homes must be acquired – meaning purchased or leased – from the eligible contractor by someone who intends to use it as their primary residence during the tax year.

An eligible contractor is defined as the person or company that constructs a qualified new energy-efficient home. This person or company must have a basis in the property during its construction to qualify. For example, if a company purchases a property and hires a third party to build the home, the eligible contractor would be the company that purchased the property, not the third-party builders. In the case of manufactured homes, the eligible contractor is the person or company that produced the home, owned it, and had a basis in it during production, not the third-party contractor that constructed the home.

To qualify as a new energy-efficient home, the following requirements must be met for each dwelling unit:

• • It must be located in the United States,
  • Its construction must be substantially or entirely completed after August 8, 2005, and
  • It must meet specific energy-saving requirements as defined in §45L(c).

The energy-saving requirements outlined in §45L(c) vary based on the classification of each home and the date of acquisition. In summary:

1. 1. Single-Family Homes:
      • The property must meet the most recent Energy Star Single-Family New Homes Program Requirements applicable to the location of the property, and
        • If acquired before January 1, 2025, apply the Energy Star Single-Family New Homes National Program Requirements 3.1.
        • If acquired after December 31, 2024, apply the Energy Star Single-Family New Homes National Program Requirements 3.2.
   2. Single-Family Manufactured Homes:
      • The property must meet the Energy Star Manufactured Home National Program Requirements in effect on the latter of January 1, 2023, or January 1 of two calendar years prior to the date of acquisition.
   3. Multi-Family Homes:
      • The property must meet the most recent Energy Star Multifamily New Construction National Program Requirements, and
      • Must meet the most recent Energy Star Multifamily New Construction Regional Program Requirements application to the location of the property.
   4. Any home acquired during 2022 must meet separate requirements.

Claiming the Credit

To claim the credit for each qualified energy-efficient home sold or leased during the tax year, eligible contractors are required to use Form 8908. The energy-efficient home credit is included as a general business credit on Form 3800.

Partnerships and S corporations must file Form 8908 to claim the credit. For their partners and shareholders, Form 8908 is not required if they are not claiming this credit on additional property outside of the partnership or S corporation. In such cases, their share of the credit can be reported directly on Form 3800.

The eligibility requirements and calculations for this credit can become complex. Please contact us for assistance and more information regarding the credit and filing.

Contributing author: Abby K. Sweers, CPA, is a tax manager with the firm. Abby is responsible for preparing and reviewing various individual and corporate tax engagements, including tax planning and compliance. She specializes in the manufacturing and construction industries, multi-state entities and high-net-worth individuals. For more information on this topic contact Abby at asweers@dmcpas.com.