Key Highlights of Tax Credits for New Home Construction

Nima Alagha 8 w

Tax credits for new home construction in the U.S. have become increasingly favourable, particularly with energy efficiency and sustainability as major areas of focus. These credits can reduce the cost of building a new home and may be of interest to developers, builders, and prospective homeowners. Here are the key highlights:

1. Energy Efficient Home Credit (45L Credit)
Amount: Up to $2,500 to $5,000 per home, depending on efficiency standards.
Eligibility: Applies to homes that meet specific energy savings requirements, primarily those built to ENERGY STAR or Department of Energy’s Zero Energy Ready standards.
Builder Focus: Available for builders and developers who construct qualifying homes. The credit is based on energy savings, so working with certified programs and assessors can be beneficial.
Duration: Extended through 2032 under the Inflation Reduction Act (IRA) of 2022, allowing builders to factor this credit into their long-term planning.

2. Residential Clean Energy Credit (25D Credit)
Amount: 30% credit for renewable energy installations, such as solar panels, geothermal heat pumps, small wind energy, and battery storage (meeting minimum capacity requirements).
Eligibility: Available to homeowners and builders for installing qualifying renewable energy systems.
Credit Application: Covers installation costs, not just equipment, and has no maximum limit. This can significantly reduce the cost of installing high-efficiency renewable systems in new homes.
Duration: Available through 2034, with a slight reduction in the percentage starting in 2033.

3. Energy Efficient Mortgages (EEM)
Focus: While not a tax credit, these mortgage programs can make energy-efficient homes more accessible by enabling buyers to finance energy-saving upgrades through their mortgage.
Qualification: Often relies on a Home Energy Rating System (HERS) rating. Some state and federal programs offer additional incentives or relaxed requirements for energy-efficient home buyers.

4. State and Local Incentives
Many states and municipalities offer additional tax credits, rebates, or incentives for energy-efficient new construction. These vary widely but can include credits for sustainable building materials, water-efficient systems, and other green building features. Some regions also provide property tax exemptions or abatements for homes with renewable energy installations or homes built to LEED or other green building standards.

5. Commercial New Home and Multifamily Credits
45L Extension: Now includes multifamily developments with up to $5,000 in credits per qualifying unit.
Expanded Commercial Building Deductions: Section 179D allows deductions for energy-efficient improvements to commercial buildings, including new construction of energy-efficient multifamily buildings.

These tax credits, rebates, and incentives are a major part of recent legislation aimed at advancing the construction of sustainable and energy-efficient homes. Builders and developers should plan carefully to meet the energy performance benchmarks required for these credits, potentially consulting with energy specialists to maximize eligibility and financial return.