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How Builders and Developers Can Claim Up to $5,000 Per Unit
If you’re a builder, contractor, or property developer, going green in your next project can mean big rewards. There’s a wave of homeowners and tenants who want energy-saving, eco-friendly buildings. To encourage this, the government is making it easier — and more profitable — to build energy efficient homes and multifamily properties. Thanks to the Inflation Reduction Act of 2022, the 45L Energy Efficient Home Tax Credit got a major upgrade that kicked in for projects placed in service in 2023 and will roll forward into 2025.
Now, you can earn up to $5,000 per qualifying unit if your project meets the new energy guidelines. That’s more than double the original credit and can add up fast on larger builds. No building height limits apply anymore, and more types of residential buildings are eligible. The new rules also make it easier to stack up other credits if you qualify.
This guide breaks down what’s changed, who can claim the credit, what buildings count, and how you can maximize your savings on every unit you build or renovate to be energy efficient. Ready to see how energy-smart design can pay off? Watch the video below for an overview, then read on for the step-by-step details you’ll need to claim every dollar.
Key Updates to the 45L Tax Credit
Several changes now make the 45L credit more valuable and more accessible for a wider range of residential builders and developers. These updates matter whether you’re planning a single custom home or a series of new apartments.
- Higher tax credit per unit: The maximum credit jumped from $2,000 to $5,000 per unit if you qualify for the highest tier.
- No more building height limits: You don’t have to worry about building height. Apartment towers, mixed-use buildings, and townhome clusters are all in play if they’re primarily residences.
- Broader eligibility: Developers, builders, and owners with a financial investment in the property during construction or renovation may claim the credit.
Qualifying Building Types
You may claim the 45L credit for a wider set of homes and complexes, including:
- Single-family homes
- Townhomes
- Duplexes and triplexes
- Apartment complexes (of any size or number of floors)
- Manufactured homes
- Student housing
- Assisted living facilities
Basically, if people live there full-time, it likely qualifies as long as you meet the energy standards.
New Certification Requirements
To claim the 45L credit, your building must now be third-party certified. These higher standards mean you need to plan your energy efficiency features early.
- ENERGY STAR Certification: Starting in 2023, every unit claiming the credit must be certified under the ENERGY STAR Residential New Construction Program. This applies to single-family and multifamily homes.
- Zero Energy Ready Home Certification: To qualify for the biggest tax credit ($5,000 per unit), the property needs to meet the Department of Energy’s Zero Energy Ready Home (ZERH) program standards.
To get Zero Energy Ready status, you need to:
- Register as a partner in the Zero Energy Ready Home program.
- Have your project verified and approved by a third-party verifier.
Most requirements for ZERH certification depend on the type of building, but these two steps don’t change. If you’re new to these programs, getting a qualified HERS rater or certified home energy professional on your team is a smart move.
How Credits Work for Different Buildings
The credits you earn depend on what kind of certification your project achieves and whether you meet extra requirements for multifamily properties. Here’s a clear look at the numbers:
| Building Type | ENERGY STAR Certified | Zero Energy Ready Home Certified | ENERGY STAR + Prevailing Wage | Zero Energy Ready + Prevailing Wage |
|---|---|---|---|---|
| Single-Family | $2,500 | $5,000 | N/A | N/A |
| Multifamily Unit | $500 | $1,000 | $2,500 | $5,000 |
Single-Family Homes
If your project is a stand-alone house, townhome, duplex, or triplex and you secure ENERGY STAR certification, the tax credit is $2,500 per unit. Meet the ZERH standard, and it doubles to $5,000 per unit.
Multifamily Buildings
Standard credits for multifamily units start lower. You get $500 per unit for ENERGY STAR, or $1,000 per unit for Zero Energy Ready Home.
But here’s where it gets exciting: meet the prevailing wage requirement, and you multiply your credits by five. That’s right — your per-unit credit jumps to $2,500 for ENERGY STAR or $5,000 for ZERH.
Prevailing wage means paying your onsite labor the average local wage for their trade, based on labor surveys in your project’s region. This does ramp up construction costs, so you’ll need to run the numbers. Still, in many regions the extra credit outweighs the higher payroll, especially on bigger projects.
Combining with Low-Income Housing Credits
Starting in 2023, you can claim both the 45L credit and the Low-Income Housing Tax Credit (LIHTC) on the same building without reducing the cost basis for 45L. If you’re already building affordable housing with energy upgrades, this unlocks some real stacking power.
Here’s what this means for you:
- Double dip credits on qualifying properties.
- Maximize incentives without sacrificing one for the other.
- Keep your project’s cost basis fully intact, so you don’t miss future depreciation.
If you’re developing or rehabbing affordable housing, these benefits add major savings that go straight to your bottom line.
Steps to Maximize Your Benefits
Claiming the 45L credit (and getting the most out of it) means following some key steps. Here’s your quick-action checklist:
1. Make sure you have a meaningful investment in the property.
You’ll need to hold a financial stake at construction or improvement for eligibility.
2. Plan for certifications early.
Work ENERGY STAR and ZERH standards into your design from the start. Choose HVAC systems, insulation, windows, and appliances that fit program guidelines. Connect with a qualified energy rater or architect with experience in green building.
3. For multifamily, weigh the value of prevailing wage.
If you pay your construction team at least the local average wage (as defined by government data), you multiply your credits. In large buildings, this can add hundreds of thousands of dollars to your total claim.
4. Don’t overlook stacking with other credits.
Layering the 45L with LIHTC or state incentives can result in outsize benefits. Review your eligibility and documentation requirements before starting to avoid surprises.
5. Consult with a professional familiar with energy efficiency tax strategies.
Rules and paperwork can change fast. Getting good advice keeps your claim solid and audit-proof.
All these steps help you position your projects for the best possible outcome. If you want more insight on these steps, check out this overview of energy efficiency tax strategies for real estate projects.
When does this tax deduction expire
The 45L credit was created in 2006. The new higher credit amounts and broader eligibility started for units placed in service in 2023, as part of the Inflation Reduction Act. Right now, the IRS rules extend the expanded 45L credit through the end of 2032. Residential builders and developers have the rest of this decade to design, build, and renovate projects that qualify for these incentives.
Starting your project soon means plenty of time to claim these bigger credits — no rush, but don’t put it off until the last minute. Building codes and tax credits can change, so it helps to stay ahead.
Conclusion
Building homes and apartments with energy efficiency in mind isn’t just good for the environment — it’s good for your business. The 45L Energy Efficient Home Tax Credit could add up quickly, letting you claim up to $5,000 per unit for qualifying projects. You’ll have the upper hand if you plan early, focus on meeting the right certifications, and pay attention to prevailing wage rules for multifamily buildings.
Before you break ground, review the eligibility, certifications, and wage requirements. Each dollar you earn in credits gives you more room to deliver value and profit on your next project. Exploring the tax options now can set you up for success all the way through 2032.
Want to make sure your next energy efficient project pays off? Start by looking into the details outlined above or reach out to a financial expert who knows green building incentives. With some planning, you’ll tap into generous credits and help build a sustainable future at the same time.
Contact Herbert Financial Group for energy efficiency tax strategies today.
