On Friday, December 20th, President Trump signed and enacted a $1.4 trillion spending package that funds the government for the 2020 fiscal year, averting a second government shutdown for 2019. Included in the spending bills are numerous tax extenders, including many that had originally expired at the end of 2017. Among these tax breaks are various provisions for energy related tax credits and incentives.
Key energy tax provisions impacting the real estate industry include the following:§45L Energy Efficiency Tax Credits Extended for Multifamily & Residential Developers for 2018 through 2020
Low-rise apartment developers and homebuilders are eligible for a $2,000 tax credit for each new or rehabbed energy efficient dwelling unit that is first leased or sold by the end of 2020. Taxpayers also have the ability to amend returns to claim missed tax credits from previous years.
§179D Energy Efficiency Tax Deductions Extended for Commercial Buildings for 2018 through 2020
Tax deductions of up to $1.80 per square foot for energy efficient commercial building property have been extended through the end of 2020. Designers of government-owned buildings remain eligible for these deductions as well.
With almost a 2-year lapse in the §45L tax credits, pursuing tax credits for a 2018 tax year will require amending a 2018 return. Likewise, designers pursuing §179D tax deductions for 2018 will also need to amend.
Eligible 45L Tax Credit Apartment Buildings & Condos:
A dwelling unit should provide a level of heating and cooling energy consumption that is significantly less than certain national energy standards, dependent on when the unit is sold or leased. Based on current construction trends, many developments already exceed these standards. All residential developments and apartment buildings completed within the last 4 years are worth assessing for potential 45L tax credits. Eligible construction also includes substantial reconstruction and rehabilitation. Homebuilders and developers can still claim the 45L tax credit retroactively if they did not claim them on previous tax returns.
Who can benefit?
• Multifamily Developers
The following types of projects should be considered:
• Affordable housing (LIHTC)
• Apartment buildings
• Assisted living housing
• Production home developments
• Residential condominiums
• Student housing
• Substantial reconstruction or rehabilitation
In determining whether the dwelling meets the energy savings requirements, the applicable construction standards are based on the 2006 International Energy Conservation Code (IECC). With today’s energy efficient building trends and the fact that the 45L benchmark is based on earlier standards, many current homes can exceed the standards and qualify. The credit is generally $2,000 for a qualifying residence that is:
- located in the United States,
- was substantially completed after a tax year inside the statute of limitations and before December 31, 2020, and
- meets the energy savings requirements of Code Section 45L(c). To meet this requirement, the dwelling must generally be certified in accordance with guidance prescribed by the IRS to have a projected level of annual heating and cooling energy consumption that meets the standards for the 50% reduction in energy usage.
Eligible construction also includes substantial reconstruction and rehabilitation. Home builders and developers can still claim the 45L tax credit retroactively if they did not claim them on previous tax returns so all residential developments and apartment buildings completed within the last 4 years are worth assessing for potential 45L tax credits.
As part of the New Energy Efficient Home Tax Credit under Code Section 45L, a $1,000 credit is also available for an eligible contractor with respect to a manufactured home. The manufactured home must have a projected level of annual heating and cooling energy consumption that is at least 30% below the annual level of heating and cooling energy consumption of a reference dwelling unit in the same climate zone. It must also conform to the Federal Manufactured Home Construction and Safety Standards.
Benefits of the energy efficient home credit
The 45L credit can have substantial value, as demonstrated by these case studies:
Case study A
Three-story, 83-unit, multi-family project, fully leased in 2017. In this project, 100 percent of the units qualified for the credit.
|Tax credit ($2,000 x 83 units)||$166,000|
|Project certification fee ($400 x 83 units)||$33,200|
Case study B
Four-story, 106-unit, multi-family project, fully leased in 2017 but first level was below grade parking. In this project, 90 of 106 units (or 85 percent) qualified.
|Tax credit ($2,000 x 90 units)||$180,000|
|Project certification fee ($400 x 90 units)||$36,000|
The Steps to Complete the Rebate Process
Step 1- Contact Hope @ 714-422-8924