Maximize Tax Savings with the Section 45L Energy Efficient Home Credit

Builders and developers of residential properties face growing pressure to manage rising costs, preserve margins, and meet buyers’ expectations for lasting value. While much of the attention tends to focus on materials, labor, and timelines, a valuable opportunity often goes overlooked: federal tax incentives for energy-efficient construction.

The Section 45L Energy Efficient Home Credit is a program designed to reward the construction or substantial renovation of energy-efficient residential properties. Whether building single-family homes, low-rise multifamily units, or undertaking major upgrades, Section 45L can provide significant tax savings for builders, while simultaneously aligning projects with the growing demand for sustainable living.

What Is Section 45L?

Section 45L provides a valuable federal tax credit of up to $5,000 per dwelling unit for eligible builders and developers who construct or significantly renovate energy-efficient residential properties. The credit supports energy-conscious construction practices and encourages the development of homes that reduce environmental impact and utility costs for residents.

This incentive applies broadly across the residential sector, including:

• Single-family homes
• Townhomes and duplexes
• Low-rise multifamily buildings (three stories or less above grade)
• Substantially renovated properties that meet the required energy standards

Under the Inflation Reduction Act of 2022, Section 45L was extended through December 31, 2032, and expanded to offer tiered incentives based on compliance with two recognized federal energy efficiency programs:

• $2,500 per dwelling unit for homes certified under the ENERGY STAR Residential New Construction Program. This certification ensures that the home meets or exceeds energy efficiency guidelines set by the U.S. Environmental Protection Agency, including improved insulation, windows, HVAC systems, and building envelope integrity. ENERGY STAR is considered an entry-level standard for energy-efficient new homes.
• $5,000 per dwelling unit for homes certified under the U.S. Department of Energy’s (DOE) Zero Energy Ready Home (ZERH) Program. ZERH certification represents a higher standard of energy performance. It requires homes to be so efficient that a renewable energy system could offset most or all of their annual energy use. These homes go beyond ENERGY STAR by integrating advanced technologies and construction practices, such as enhanced thermal enclosures, better indoor air quality systems, and renewable energy readiness.

Who Qualifies?

To qualify for the Section 45L tax credit, a builder or developer must construct or substantially renovate eligible residential properties and incorporate energy-saving features such as advanced insulation, high-efficiency HVAC systems, windows, and doors. The property must meet the ENERGY STAR Residential New Construction Program requirements or the DOE Zero Energy Ready Home (ZERH) Program, both of which require third-party certification to verify compliance.

In addition, eligible contractors must own the home and have a basis in it during construction, and they must sell or lease the home to another person for use as a residence. This means that the credit is not typically available to homeowners or landlords who purchase completed homes—they must be involved in the construction process and hold ownership during that time.

The homes must fall into specified categories under ENERGY STAR guidelines, including single-family homes (such as manufactured housing) and low-rise multifamily properties. All properties must be located in the United States and meet the applicable energy-saving requirements based on home type and acquisition date.

To qualify for the expanded credit under the Inflation Reduction Act, the home must be placed in service between January 1, 2023, and December 31, 2032.

Why Builders Are Taking Notice

Section 45L delivers meaningful value to builders and developers by addressing multiple business priorities at once. With demand for sustainable housing on the rise and operating costs continuing to climb, the credit offers a strategic advantage.

The credit provides up to $5,000 per unit, which can result in significant financial benefits across large-scale developments. Energy-efficient homes also offer strong market appeal, especially to buyers and renters focused on long-term savings and environmental impact. Additionally, as local and state jurisdictions increasingly adopt stricter energy codes, meeting the standards of programs like ENERGY STAR or ZERH can help projects stay ahead of regulatory requirements while aligning with broader sustainability goals.

What to Expect When Claiming the Credit

Claiming the Section 45L credit involves a series of coordinated steps that require proactive planning, energy performance validation, and proper documentation.

Design for Efficiency: Begin by incorporating qualifying energy-efficient systems into your building plans to align with ENERGY STAR or ZERH criteria.

Engage a Certified Home Energy Rater (HERS Rater): Early coordination with a certified rater is essential. These third-party professionals conduct inspections, perform testing, and issue the official certification required to claim the credit.

Complete Construction and Certification: Once construction is complete and the home passes inspection, the HERS Rater will provide the documentation necessary to validate the property’s compliance with energy standards.

Work With Your Tax Advisor: Accurate reporting is key to receiving the full benefit. The Section 45L credit is claimed using IRS Form 8908 as part of your federal tax return. A qualified tax advisor can help ensure proper filing and maximize your eligible credit.

Build Smarter with Section 45L

The expansion of Section 45L has significantly reshaped the tax landscape for builders and developers looking to prioritize energy efficiency. Whether you’re planning a new construction project or upgrading existing properties, now is the time to evaluate how this credit can support your financial strategy and long-term goals.

Don’t leave these potential savings on the table. To explore how Section 45L could benefit your next project, contact your CRI advisor today. Our team can help you navigate the requirements, optimize your tax position, and unlock the full value of this incentive, helping turn energy-efficient construction into a measurable business advantage—and a long-term strategic win.