The Energy Home Credit known as 45L is a federal tax credit of $2,000 per dwelling unit for each qualified energy efficient apartment built or renovated. For an apartment owner with 100 units, this credit could result in a $200,000 tax savings or refund.
The 45L benchmark for energy efficiency is based on a 2005 reference building, meaning most structures built to recent standards exceed the benchmark and qualify. The tax credit also covers substantial reconstruction and rehabilitation.
Owners who built or renovated apartment communities between 2008 and 2011 may qualify for the credit. This means potential tax savings or a refund for owners of apartments, condos and certain university dorms.
The Internal Revenue Service (IRS) requires proper certification and documentation by taxpayers who claim the credit.
To illustrate the potential impact of the 45L credit for the owner of an apartment building, assume the following: ABC Company completed the construction of an apartment community in 2010. The community is three stories tall and has leased 250 apartment homes. ABC Company owned the property during the construction of the community and therefore is considered the “eligible contractor” who can claim the credit.
The first stage of a 45L credit study is to perform a tax analysis to ensure that it is a viable building and the owners understand and can use the tax credit. Then they gather standardized building information from ABC Company to complete the preliminary review. The independent energy modeling engineers who have the required IRS certification and have IRS-approved energy modeling software determine whether the properties will potentially qualify for the credit. After the initial review, a cost benefit analysis is provided to the owner. This is all accomplished without any upfront payments or fees.
The certified engineer then does an onsite visit, conducts a final review and signs off on the certification, stating that IRS’ requirements are satisfied. If all 250 units qualify, the potential tax credit for ABC Company would be $500,000 ($2,000 per 250 units). The accounting firm completes the filing of the credit using each unit’s certification report to finalize the tax savings or refund.
Source: CPA firm Dixon Hughes Goodman