45L Tax Credit Eligibility
Qualifying properties are comprised of a dwelling unit or units. A dwelling unit is defined as one or more rooms including a kitchen and designed as a unit for occupancy by one family for the purpose of cooking, living, and sleeping. In order to meet the requirements of Section 45L, it must also be 3 stories or less above grade and may include apartments, condominiums, assisted living facilities, student housing dwelling units, townhouses, and single-family homes.
The $2,000 tax credit is achieved for “each” dwelling unit within the buildings.
Types of buildings or projects can qualify for 45L Tax Credits
- Affordable housing (LIHTC)
- Apartment buildings
- Assisted living facilities
- Production home developments
- Residential condominiums
- Student housing
- Substantial reconstruction or rehabilitation
Specific Requirements
Each unit must meet a level of energy efficiency that is higher than 2006 IECC standards. Many newer or rehabbed developments already exceed these standards based on recent energy standards and building codes. We recommend that any apartment or condominium project developed (new construction or rehabilitation) within the past four years to be evaluated for the 45L Tax Credit.
- Building envelope must account for one-fifth the improvements
- New construction examples include:
- Wall insulation must be R-19 or better in the Deep South
- Quality windows: minimum, Energy Star U-Values in the North, and solar heat gain coefficients (SHGC) in the South
- Rehab requirements include:
- New construction examples include:
- R-19 or better in wall insulation other than the Deep South
- Rigid foam board or insulated sheathing is beneficial
- For HVAC equipment, if walls can’t be insulated to T-19, the HVAC efficiency must be at least SEER 14 for a/c and 95%
Taxpayer Considerations
- Typically works best in a 9 percent low-income housing tax credit transaction with excess eligible basis
- The 45L credit is an IRC Section 38 business credit
- General business credits generally are not allowable as a credit to offset Alternative Minimum Tax (AMT)
- The 45L credit reduces the taxpayer’s depreciable basis
- The credit is claimed on the tax return for the year the dwelling units are leased or sold
