December 19, 2024
The IRS provides guidance on the New Energy Efficient Home Credit which is intended to encourage building energy efficient homes by construction companies, as amended by the Inflation Reduction Act (2022). This Act extends the credit through 2032 and there are some updates for the credit amounts and requirements for homes acquired after December 31, 2022.
In this article, we are going to introduce the key eligibility criteria, the updated credit amounts, and record retention requirements for claiming the credit.
Eligible construction contractors:
Contractors must construct or substantially reconstruct a qualified new energy-efficient home located in the United States. In addition, they also need to sell or lease the home to a person for use as a residence.
A qualified new energy efficient home:
1) Be located in the United States.
2) The construction must be substantially completed(a) after the enactment of this section.
3) Must meet energy-saving requirements (including Energy Star Program(b) requirements, Zero Energy Ready Home (ZERH) program(c) requirements, and Prevailing wage requirements for multifamily dwelling units only.)
(a) Generally, “substantially completed” for construction means that the property is ready for intended use, which includes meeting all applicable building codes and having essential utilities connected.
(b) The U.S. Environmental Protection Agency (EPA) offers the Energy Star label for homes. There are several strict requirements for windows, doors, walls, heating equipment, water equipment, light fixtures, and so on. For the detail, please visit the following link.
(c) ZERH program is administered by the U.S. Department of Energy (DOE). They are going to achieve net zero energy consumption. ZERH certification has more stringent requirements compared to Energy Star. For the detail, please visit the following link.
Credit amounts:
The New Energy Efficient Home Credit provides varying amounts based on the type of home and the energy-saving standards met. The credits amounts are as follows:
For homes acquired on or before 2022: $1,000 or $2,000, depending on the energy-saving requirements.
For homes acquired from 2023 to 2032: From $500 to $5,000, depending on the home type and standards met.
Example of Credit Amount:
New single-family homes meeting Energy Star Program: $2,500
New single-family homes meeting ZERH program: $5,000
New multifamily dwelling units meeting Energy Star program: $500
New multifamily dwelling units meeting ZERH program: $1,000
Bonus credits: In addition, a bonus credit is ready for multifamily dwelling units if the eligible contractor satisfies prevailing wage requirements during the construction. The bonus credit is either $2,500 or $5,000 for the units meeting ZERH program.
Record retention:
An eligible contractor who claims the credit must meet the recordkeeping requirements. Records must include:
Certification of Energy Star or ZERH, including dates.
Location of the qualified home in the U.S.
The taxpayer’s status of an eligible contractor.
The purchaser’s name.
Proof of the prevailing wage requirements, if applicable.
Eligible contractors may rely on a dealer’s statement to establish the purchase date, home location, and residential use if sold through a dealer.
For more information or inquiries regarding the New Energy Efficient Home Credit, please contact us.
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