The Consolidated Appropriations Act, 2021, H.R. 133, signed into law by President Trump on December 27th, extended the 45L energy efficient home $2,000 tax credit, which had been scheduled to expire last year, to cover qualified new energy efficient homes sold or leased through 2021.

And yes, regular readers of this blog will notice that I am writing about the same Act of Congress I posted about last week, but the $2.3 trillion, 5,593 page bill, the second largest ever passed by Congress, provides tax relief for just about everyone and all businesses from the $600 per person check that many have focused on to the 179D commercial property energy efficiency tax deduction, that I posted about, and much more. Key among the many provisions of the Act is this extension of a $2,000 per dwelling unit tax credit (.. yes, it is a credit and not a deduction).

Page 4,914 of The Consolidated Appropriations Act, 2021, provides,


(a) IN GENERAL.—Section 45L(g) is amended by striking ‘‘December 31, 2020’’ and inserting ‘‘December 31, 2021’’.

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to homes acquired after December 31, 2020.

Okay, tax law may not be thrilling reading, but those few words apply to new construction and renovations of single family homes, multi family units in buildings up to 3 stories, including individually owned condominium units or rented apartments including much student housing; and with a $2,000 per dwelling unit federal tax deduction available, you may want to keep reading the relatively modest requirements, even if they are a bit dry.

Internal Revenue Code Section 45L provides eligible taxpayers may claim this tax credit for new energy efficient homes that are sold or leased by that taxpayer during the tax year for use as a residence. An eligible taxpayer is the person that constructed the qualified energy efficient home or produced a qualified manufactured home.

A person must own and have a tax basis in the qualified energy efficient home during its construction to qualify as an eligible taxpayer. For example, if the person that hires a third party contractor (.. and despite that the Federal law confusingly uses the word 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 taxpayer and the third party contractor doing the work is not an eligible taxpayer.

A qualified new energy efficient home is a dwelling unit, whose construction is substantially completed after August 8, 2005, and sold or leased before 2022, for use as a residence. The tax credit can even be claimed retroactively for past years. The home is required to be certified and meet certain energy saving requirements described below.

Significantly, construction includes not only new construction, but also substantial reconstruction and rehabilitation, and this incentive has been widely utilized in major renovations of multi family buildings, very commonly 3 story garden apartment buildings where this tax credit is layered on top of state and utility incentives for energy efficiency.

The credit is $2,000 for a dwelling unit that is certified to have an annual level of heating and cooling energy consumption at least 50% below the annual level of heating and cooling energy consumption of a comparable dwelling unit and has building envelope component improvements that account for at least 1/5 of the 50% reduction in energy consumption.

The required comparable dwelling unit is one that would have been constructed in accordance with the standards of chapter 4 of the 2006 International Energy Conservation Code as such Code (including supplements) was in effect on January 1, 2006.

An eligible taxpayer must obtain a certification that the dwelling unit meets the requirements of section 45L(c) from an eligible certifier before claiming the section 45L credit. Importantly, the certification will be treated as satisfying the requirements of section 45L(c) if all the construction has been performed in a manner consistent with the design specifications provided to the eligible certifier and the certification contains all of the information required by section 3 of Notice 2008-35. There is an Approved Software List for certification of the designed work and the requirements make costs dramatically less for certification of more than 85 units.

As I said in a virtual seminar last week, “which is all government speak for, to qualify for the $2,000 tax credit an eligible dwelling unit must be certified as at least 50% more efficient than the 2006 IECC benchmark and sold or leased prior to January 1, 2022.

Many residential builders simply complying with state minimum energy requirement will easily satisfy the standard here, including most builders in California, Arizona, and Maryland. And in those states and elsewhere those contemplating new construction and major renovations may be well served to have that work completed in 2021 because even if this tax credit is again extended, given the political winds blowing in Washington DC, any future extension may well carry with it a heightened minimum energy standard (as just happened in the 179D extension).

Following a year when carbon emissions were down across the U.S. because many were afraid to leave their homes during the coronavirus pandemic, taking advantage of this one year extension of the energy efficient home tax credit, in the Covid Relief Bill, be one small step yielding $2,000 (per unit), good for the moribund U.S. green building industry, and also be a giant leap for mankind toward repairing the planet.