Eligible contractors may qualify for up to $5,000 credit per home under expanded credit
Good news for contractors: Those who construct or substantially reconstruct qualified new energy-efficient homes located in the United States may qualify for a tax credit of up to $5,000 per home under Section 45L of the tax code. Congress expanded the credit last year.
Eligibility Criteria and Requirements: To qualify for the expanded tax credit, contractors must meet all the requirements outlined in Sec. 45L of the Internal Revenue Code. The IRS provides interpretation and guidance on these requirements in Notice 2008-35 regarding requirements for certification, including the use of alternative compliance paths and the treatment of certain energy-efficient features. It also addresses common issues that have arisen in the implementation of the energy-efficient home credit, including:
- The credit is for homes acquired after 2022.
- The contractor that constructs the new energy-efficient home must own the home during its construction in order to be eligible for the credit.
- The home is certified as a new certified Zero Energy Ready Home under the Department of Energy’s Zero Energy Ready Home program in effect on January 1, 2023.
- In order to satisfy the energy efficiency requirements, the home must be certified before the contractor claims the credit.
- The person providing written certification must be accredited by Residential Energy Services Network (RESNET).
- The person providing the certification cannot be related to the contractor.
- The certification does not need to be included in the tax return.
- Prevailing wage requirements must be satisfied. Under proposed regulations, the contractor must use the general prevailing wage when construction starts but there is no requirement to update the rates during construction. In the event of failure to comply, the taxpayer has the opportunity to satisfy the requirement by making corrections.
It is crucial for contractors to consult with a tax professional to ensure compliance with the eligibility criteria before claiming the credit.
Claiming the Credit: Contractors who are eligible to claim the tax credit for new energy-efficient homes should use Form 8908, Energy Efficient Home Credit, to submit their claim. Partnerships and S corporations must file this form; but all other taxpayers are not required to file it if the only source of the credit is from a partnerships or S corporation. They will file Form 3800 instead.
Completing the appropriate form accurately and providing the necessary documentation will facilitate the processing of the claim.
Types of Homes and Energy-Saving Requirements: The tax credit applies to single-family homes, including manufactured homes, as well as multifamily homes that fall under Energy Star programs. It is essential to note that the homes must meet specific energy-saving requirements based on their type and acquisition date. These requirements are in place to ensure that the homes contribute to overall energy efficiency and sustainability efforts.
Acquisition by Sale or Lease: For contractors to claim the credit, the qualified homes must be sold or leased by an individual during the tax year for use as a residence. It is crucial to verify the eligibility of the homes and document the acquisition details accurately. Contractors should retain all necessary records and consult with a tax professional to ensure compliance throughout the process.
Consulting with Tax Professionals: Given the complexity of the tax credit and the importance of accurate compliance, it is strongly recommended that contractors consult with tax professionals who have the expertise to navigate the intricacies of the tax code and can provide valuable guidance to maximize the benefits of the credit. They can also assist contractors in determining eligibility and optimizing their tax planning strategies.
The IRS’ recent reminder about the tax credits available to eligible contractors for constructing or substantially reconstructing qualified energy-efficient homes highlights an opportunity for businesses to save money while promoting sustainability. By leveraging the tax credit, contractors can not only contribute to energy conservation efforts but also enhance their bottom line.
The professionals at Sol Schwartz & Associates have been working closely with contractors since our firm was founded in 1980. If we can help you take advantge of these energy-efficiency tax credits, just leave your information below and we will get back to you right away.