IRS Issues Additional Guidance on Section 45L New Energy Efficient Home Credit

The IRS issued Notice 2023-65 on September 27, 2023, providing additional guidance on the §45L New Energy Efficient Home Credit. Originally enacted as part of the 2005 Energy Policy Act, the credit was recently modified as part of the 2022 Inflation Reduction Act. This Notice has been anticipated by industry in order to address outstanding questions on eligibility. The guidance addresses:

1. Who is eligible for the credit
2. The applicable amount of the credit
3. Energy saving requirement
4. Certification requirement
5. Substantiation requirement

The credit can be as high as $5,000 per unit depending on the type of property being constructed, the energy efficiency standard used for construction and whether prevailing wages are being paid. Although the credit amounts remain unchanged in the Notice, the IRS clarified that for property to qualify for the §45L credit, it must meet the Energy Star requirements for single-family and multi-family new construction. This is a substantial change from the previous guidance for §45L since properties will now need to meet Energy Star standards from the START rather than being certified by an eligible qualifier using a reference standard at the END of construction.

The IRS also clarifies that property eligible for the §45L credit AFTER December 31, 2022, must be certified by an “eligible certifier” using modeling software as outlined under the Energy Star and ZERH programs.

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