I have some exciting news for developers and investors: starting next year, the 45L Tax Credit, a federal credit previously worth $2,000 per dwelling unit, will increase to potentially as much as $5,000 per dwelling unit to account for inflation. For those not familiar with the 45L Tax Credit, it was originally established in 2005 to reward developers for building energy-efficient homes. In addition to the tax credit increase, now both mid-rise and high-rise buildings are eligible and the requirements are now aligned with the standards established in the Energy Policy Act.

Depending upon how many units are in a building, this can be an enormous benefit. As we all hopefully move towards more eco-friendly building practices, this is just further incentive to create more energy-efficient developments. For example, a building with 80 qualifying units could potentially receive $400,000 in 45L Tax Credits with a Zero Energy Ready Homes certification. Clearly, this could be a huge benefit to many homebuilders and developers!

So, what are the requirements and how can we cash in? A building will have to undergo an energy analysis performed by a third party in order to certify that the development’s energy consumption is significantly less than the standards outlined in the Department of Energy programs. Many of us are already familiar with the Energy Star and Zero Energy Ready Homes, giving us some idea of the type of requirements to expect.

If you’re already aware of the 45L Tax Credit, be sure to familiarize yourself with the new updates outlined in the Energy Policy Act so you know exactly what is expected of you during the construction process, like required inspections, assessments, etc. The changes give the opportunity for potentially much more tax credits and have also expanded what types of buildings can be considered, so if you haven’t yet looked into whether or not the program could work for you, I highly suggest doing so now. For developers who are committed to building clean energy buildings, this is an amazing reward for doing what we have already have been!