Who Gets the 45L Tax Credit?
The IRS sheds light on the confusion over which party is eligible to receive the 45L Tax Credit.
Published March 31, 2023
The IRS Has Spoken
A key part of the 2022 Inflation Reduction Act for homebuilders is the revamp and extension of the 45L Tax credit to include up to $5000 in tax credits per home. One key question the team at EnergyLogic regularly gets asked is “who gets the tax credit?” The IRS defines the eligible contractor in the Instructions for Form 8908:
“An eligible contractor is the person that constructed a qualified energy-efficient home (or produced a qualified energy-efficient home that is a manufactured home). A person must own and have a basis in a qualified energy-efficient home during its construction to qualify as an eligible contractor for the home. For example, if the person who hires a third-party contractor to construct the home owns and has the basis in the home during construction, the person that hires the third-party contractor is the eligible contractor, and the third-party contractor isn’t an eligible contractor.”
In Layman's Terms
In consultation with a local tax professional, EnergyLogic can boil this down to say as a general rule the eligible contractor is the owner of the land or project during construction for 45 L tax credit purposes. Here are some examples:
- An individual buys a lot a retains a contractor to construct a home. The individual is the eligible contractor.
- A production builder buys lots and then constructs homes on them that they either pre-sell or sell on spec. The production builder is the eligible contractor.
- A developer buys a lot and retains a contractor to build a multifamily apartment. The developer is the eligible contractor.
- A contractor purchases a lot and builds a single home to sell on spec. The contractor is the eligible contractor.
This doesn’t cover every potential situation, but the key concept is who has ownership (basis) and the risk of loss during construction.
Important to Note!
EnergyLogic and the author have sought the advice of tax professionals but are not tax professionals. This advice may not be accurate in every situation, the reader should take all necessary steps to ascertain that the information you receive is correct and has been verified by a tax professional familiar with the reader’s tax liabilities. No content in this article constitutes or should be understood as constituting- recommendations to enter into any tax filing strategy.
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