Builders Have New Tax Credit
home builders have new motivation to build energy-efficient homes. The Energy
Policy Act of 2005 included many provisions regarding coal, natural gas, renewable
energy and energy efficiency and distribution. It also enacted a new tax credit
under IRC section 45L-the energy-efficient home credit-available to eligible contractors.
Depending on the energy savings achieved, the credit is $1,000 or $2,000 per home.
CPAs should become familiar with the credit to claim it for eligible clients.
section 45L, a home qualifies for the credit if it has all the following characteristics:
located in the United States.
construction was substantially completed after August 8, 2005.
meets the energy-saving requirement specified in section 45L.
is acquired from an eligible contractor in either 2006 or 2007 for use as a residence.
service issued IR news release 2006-32 and notices 2006-27 and -28 to explain
how homebuilders can qualify newly constructed homes for the credit. They include
information about the certification process a builder must undergo to qualify
and a public list of software programs that can help calculate energy consumption
to obtain the proper certification.
Energy savings. Generally, a
manufactured home must be certified to provide an energy-consumption level for
heating and cooling at least 30% to 50% (50% for other homes) below that of a
comparable home constructed under current energy standards. It also must have
exterior improvements that provide an energy-consumption level at least 10% below
that of a comparable home. If a manufactured home cannot meet the 50% threshold,
the credit is reduced from $2,000 to $1,000 if a 30% energy-efficiency standard
Certification. An eligible contractor must obtain a manufactured
home certification from an eligible certifier before claiming the $2,000 credit;
see section 45L(c) and notices 2006-27 and -28. A contractor need not attach the
certification to the return on which the credit is claimed. However, a taxpayer
must maintain books and records sufficient to establish entitlement to (and amount
of) any deduction claimed. Thus, a contractor claiming a $2,000 credit should
retain the certification as part of its books and records.
certifier is a person, not related to the contractor, who has been accredited
or otherwise authorized by the Residential Energy Services Network (RESNET) or
an equivalent rating network to use energy-performance measurement methods approved
by RESNET (or the equivalent rating network).
Notice 2006-28 provides
procedures for manufactured homes; notice 2006-27 for all other homes.
credit is reported by the taxable entity or, for pass-through entities (for example,
S corporations and partnerships), on the shareholder's or partner's individual
return. It cannot be applied against the alternative minimum tax; thus, it may
be limited and carried forward. It is not refundable.
should plan ahead with clients in the home construction business. The credit can
be significant; thus, obtaining the proper certification is important. For more
information, see Tax Clinic, "Tax Credit for Home Builders," by Joel Ackerman,
CPA, in the October 2006 issue of The Tax Adviser.