It’s already clear that EPAct Section 45L incentives have been extended retroactively for another year to cover improvements completed during 2014. We’ve decided to provide a brief overview and a reminder of the incentives available for energy efficiency improvements under Section 45L.
The 45L Tax Credit: An Overview
EPAct Section 45L provides an incentive totaling 2,000 dollars in the form of a tax credit per unit for a newly constructed owner-occupied or rental residential unit, as well as for improvements carried out in already existing properties.
In order to qualify for the incentive, each residential unit will have to adhere to particular energy efficiency standards. The tax credit can be claimed for the year during which the unit becomes occupied.
The current energy efficiency standards have become rather strict, which is why many buildings constructed during 2014 qualify for the Section 45L incentive automatically.
The procedure is simple – any unit will be compared to a reference building that has a similar size and is located within the same climate zone. The heating and cooling consumption has to be at least 50 percent lower than the one for the reference unit. Anywhere between 10 and 50 percent of the reduction should stem from building envelope modifications and improvements.
There is an additional opportunity to get a lower incentive. Each residential unit that has a 30 percent heating and cooling energy reduction will qualify for a 1,000-dollar incentive.
Who can Qualify for the Incentive?
The taxation incentive provided under EPAct Section 45L is available for the developers of numerous types of residential buildings – single-family residences, apartment buildings and condominiums. The building has to be located in the US and its construction should have been completed before the end of 2014.
The residential building has to be a dwelling unit for the developer to qualify for a tax incentive. A dwelling unit is defined as a single residential unit that gives access to complete and independent living conditions to one or more individuals. These conditions include permanent provisions for eating and cooking, sleeping and sanitation.
The dwelling unit cannot be located in a building that exceeds three stories in height.
Developers need to hire a certified third party that will carry out an extensive energy audit and make the conclusion about the energy efficiency of the building in comparison to the reference unit. The certification team will usually consist of engineers and tax experts that help developers make the most of the opportunity.
Timeframe and Other Conditions
The building needs to have been constructed and occupied between August 8, 2005 and December 31, 2014 for the developer to claim the incentive. There’s no prerequisite for the developer to be the one occupying the residential dwelling unit.
The credit does not have to be used within a single taxation year. Any unused amount can be carried forward for a period of up to 20 years.
A developer can claim the Section 45L tax credit for a past year by amending previous tax return. This means amending either Form 1045 for individuals or Form 1139 for corporations.
These are the conditions under which the EPAct Section 45L incentive will be available during taxation year 2015. If you’ve executed such projects over the past year, the time is right to start working on certification and the documents needed to qualify for the incentive.
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