New energy efficient home credit guidance

ARTICLE | October 25, 2023

Authored by RSM US LLP

Executive summary

The IRS issued Notice 2023-65, providing guidance on the new energy efficient home credit under section 45L as amended by the Inflation Reduction Act of 2022. Notice 2023-65 provides guidance on (1) the taxpayer eligible for the credit, (2) determining the amount of the credit, (3) energy saving requirements, (4) certification requirements and (5) substantiation requirements. 

Notice 2023-65

The Internal Revenue Service issued Notice 2023-65 (the Notice), providing guidance on the new energy efficient home credit under section 45L as amended by the Inflation Reduction Act of 2022 (IRA). Notice 2023-65 provides guidance on (1) the taxpayer eligible for the credit, (2) determining the amount of the credit, (3) energy saving requirements, (4) certification requirements and (5) substantiation requirements.

The Notice instructs that the section 45L credit for the taxable year equals the applicable amount for each qualified home constructed or manufactured by an eligible contractor and acquired by a person from such contractor after Dec. 31, 2022, and before Jan. 1, 2033, for use as a residence during the taxable year for which the taxpayer is claiming the 45L credit.

The taxpayer eligible to claim the section 45L credit is the eligible contractor that constructs or manufactures, in the case of a manufactured home, the qualified new energy efficient home (qualified home). The eligible contractor must also own and maintain a tax basis in the qualified home during the construction or production. Lastly, the eligible contractor must sell or lease the qualified home to an individual who uses the home as a residence during the taxable year. For manufactured homes, a qualified home may be acquired directly or indirectly from an eligible contractor. The Notice provides a safe harbor allowing an eligible contractor to rely on a dealer’s detailed statement concerning qualifying sales of manufactured homes under section 45L.

Under the IRA, the eligible contractor may claim a section 45L credit ranging from $500 to $5,000 per dwelling unit, depending on which energy savings criteria the home satisfies. For multifamily homes, section 45L offers  bonus credit amounts for meeting the prevailing wage requirements. 

The IRA set new energy savings requirements outlined in section 45(c) that look to certain Energy Star programs or zero energy home programs (ZERH programs) established by the Department of Energy (DOE). The Notice directs taxpayer to the Energy Star webpage or the DOE webpage to determine the energy savings requirements for single family, multi-family and manufactured homes. The Notice directs taxpayers to the same webpages to determine the requirements for the necessary certifications that a home has met the requirements of the applicable  Energy Star or ZERH program. 

An eligible contractor must meet the general recordkeeping requirements under section 6001 to substantiate qualifying for the section 45L credit. 

The Notice obsoletes Notice 2008-35 and Notice 2008-36 for qualified homes acquired after Dec. 31, 2022, however, both notices remain applicable for homes purchased or leased under former section 45L.

Takeaway

The Notice provides basic guidance related to the credit and confirms the need to consult the Energy Star and DOE webpages to proactively plan into the section 45L credit. Taxpayers may continue to rely on the old Notices for credit claims related to qualified homes acquired prior to Jan. 1, 2023, that meet the less stringent energy saving requirements.