Home Builders Have New Tax Credit: Energy Efficiency Gets Rewarded

By Laffie, Lesli S. | Journal of Accountancy, October 2006 | Go to article overview

Home Builders Have New Tax Credit: Energy Efficiency Gets Rewarded


Laffie, Lesli S., Journal of Accountancy


U.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.

RULES

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.

IRS HELP

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. …

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