.S. 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.
Under section 45L, a home qualifies for the credit if it has all the following characteristics:
It’s located in the United States.
Its construction was substantially completed after August 8, 2005.
It meets the energy-saving requirement specified in section 45L.
It is acquired from an eligible contractor in either 2006 or 2007 for use as a residence.
The 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 is met.
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.
An eligible 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.
The 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.
CPAs 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.
—Lesli S. Laffie, editor
The Tax Adviser
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