Cashing in on Residential Property: How Residential Building Owners Can Benefit from Energy Efficient Improvements

By on June 12, 2018

by Teri Samples, CPA, Mueller Prost CPAs + Business Advisors

Did you know that eligible owners of certain energy efficient residential property may qualify for a tax credit? Recent tax legislation extended the Energy Efficient Home Credit which offers a 45L Tax Credit of $2,000 per dwelling unit to owners of energy efficient homes and apartment buildings.   The 45L program, which began in 2006, expired at the end of 2017.  It is not too late to go back to prior years and claim your missed tax credits!

How Can Building Owners Qualify?

To claim the section 45L Federal credit, the owner must have the unit’s energy efficiency certified by an approved rater who has been qualified by the Residential Energy Services Network (RESNET). To qualify a dwelling unit should provide a level of energy efficiency that is significantly less than certain energy standards depending on the year leased or sold.  Eligible construction also includes substantial rehabilitation.

What types of Projects Qualify?

The following types of properties should be considered:

  • Affordable housing
  • Apartment buildings
  • Assisted living facilities
  • Production home developers
  • Residential condominiums
  • Student housing

What if the Credit Wasn’t Claimed?

The 45L credit is a business credit.  This has a one-year carryback and a 20-year carryforward.

How does the Energy Efficient Home Credit Impact Your Bottom Line

Case Study 1

Completed 70-unit multi-family project, fully leased.  This project had four stories, but the first level was below grade, so the client was able to consider credits for all floors.

In this project 65 of the 70 units were certified.

Tax credit ($2,000 x 65 units) $130,000
Estimated certification fee ($500 x 65 units)  $  32,500
Net after tax cash benefit $  97,500


Case Study 2

Completed 255-unit multi-family project, fully leased.  This project had three stories.

In this project, 171 of the 255 units were originally certified.  The remedial measures for the units that failed were taken for thermostats and insulation.  An additional 41 units passed, bringing the total certified units to 212 units.

Tax credit ($2,000 x 212 units) $424,000
Estimated certification fee ($500 x 212 units)  $106,000
Net after tax cash benefit $318,000

(Note:  The benefit does not consider tax effects due to the reduction in basis of the property or increased construction cost incurred for energy efficient qualifications and measurements.)

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