Written by Rick Cobbs, The Energy Network WW
The Inflation Reduction Act, signed by President Biden in August 2022, updates and changes the requirements to Section 45L of the IRS code. The 45L federal tax credit encourages builders and developers to build energy-efficient homes by rewarding them with tax credits.
For houses or townhomes that sold in 2022, the previous requirements of the 45L tax credit were extended. A house can earn a $2,000 tax credit if, according to IRS approved software, it is 50% more efficient than the 2006 International Energy Conservation Code.
Starting January 1, 2023, the 45L Tax Credit changes to $2,500 for a house or townhome that is certified with the ENERGY STAR Residential New Construction Program or $5,000 for a house certified as Zero Energy Ready Home (ZERH) by the U.S. Department of Energy. There are differing tax credit amounts and certification programs for apartments and condos.
The first step in earning the $2,500 tax credit and getting a house ENERGY STAR certified is to visit the ENERGY STAR Residential New Construction Program Requirements website and use the map to determine what version of ENERGY STAR you should be following. Minnesota is currently following ENERGY STAR version 3.1 Rev 11.
While on the site you should also download the main documents and checklists, including:
- Program Requirements
- Water Management System Builder Requirements
- HVAC Design Report
- Rater Design Review Checklist
- Rater Field Checklist
The next step is to meet with your Home Energy Rating System (HERS) rater and review the house’s design to ensure the house is eligible to be certified and meets or is below the target energy use.
One of the main items to pay attention to is the requirement for Reduced Thermal Bridging from the Rater Field Checklist. For exterior walls, there are options for rigid foam, using SIPS, ICF, double-wall construction, or advanced framing. Most builders choose the advanced framing option to reduce lumber and have more insulation in the walls. This should be noted on a house’s plan and communicated to the framing contractor.
The HVAC installer and designer also play a critical role with ENERGY STAR certification. Prior to construction, the HVAC designer should perform heating and cooling load calculations and design the ductwork and ventilation system per the ENERGY STAR requirements.
There are two paths for certification depending on the HVAC installer. The first path is using a credentialed HVAC ENERGY STAR contractor, and the second path is using a non-credentialed contractor. Most HERS raters recommended using a credentialed HVAC contractor to ensure all the program requirements are fully understood and accounted for. If a non-credentialed contractor is chosen, there is an option for the HERS rater to do some extra testing on the HVAC system to ensure the installation meets the design.
To earn the $5,000 tax credit for ZERH, the house is required to be ENERGY STAR certified. Additionally, there are some more stringent energy-efficiency requirements. Some changes may also have to be made to the hot water delivery system and you may be required to account for a future photovoltaic install.
The initial work to certify houses may seem cumbersome and intimidating. However, the updated 45L tax credit is good through the year 2032. So, some upfront work can pay dividends for years to come. If you have any questions, follow up with your HERS rater.
Want to learn more? Take the “45L Tax Credit and Energy Star Certification” course through Contractor University. Learn more >>
