Using ENERGY STAR 3.1 to Obtain the 45L Builder Tax Credit

To become ENERGY STAR certified, new homes must undergo an inspection from a Home Energy Rater

The 45L Builder Tax Credit is a federal tax incentive designed to promote the construction of energy-efficient homes.

Credits are distributed in two tiers, with $5,000 credits available to homes that meet the DOE’s Zero Energy Ready Home (ZERH) program requirements and a $2500 credit for homes that meet ENERGY STAR certification.

Homes that meet ZERH requirements are defined as properties with such exceptional energy efficiency that their entire energy usage could be offset by introducing a renewable energy system. While ambitious, builders are often better off trying to meet ENERGY STAR’s new version 3.1 requirements to qualify for the $2,500 45L tax credit.

We’ll discuss what benchmarks new homes are required to reach under ENERGY STAR 3.1 guidelines, as well as tips to help you apply and acquire the 45L tax credit.

Understanding ENERGY STAR 3.1 Accreditation

ENERGY STAR is a voluntary program developed by the U.S. Environmental Protection Agency (EPA) to identify and promote energy-efficient products and practices. Version 3.1 provides an updated set of guidelines for builders to construct homes that meet energy efficiency requirements and qualify for various incentives, including the 45L Builder Tax Credit.

To become ENERGY STAR certified, new homes must undergo an inspection from a Home Energy Rater and acquire a Home Energy Rating Score (HERS) above that of a Reference Design Home. A Reference Design Home is defined as any home built to ENERGY STAR requirements in a similar climate zone.

To achieve a proper HERS target score, builders can use RESNET-accredited HERS software that will allow them to match their home score to the HERS index.

From there, home builders are required to complete five mandatory requirements:

  1. Undergo a National HVAC Design Report: Completed by the HVAC designer and submitted to the rater.
  2. Undergo a National Rater Design Review Checklist: The rater verifies that the HERS target score is from your RESNET-accredited software.
  3. Complete National Water Management System Builder Requirements: Builders must ensure they follow all ENERGY STAR requirements.
  4. Undergo a National Rater Field Checklist: Two inspections are performed by the rater before drywall installation and after construction has been completed.
  5. Undergo a National HVAC Commissioning Checklist: Your HVAC installer will fill out this checklist and keep it for both of your records.

To achieve a proper HERS target score and become ENERGY STAR certified, builders should familiarize themselves with the version 3.1 requirements below.

Note: Builders have some flexibility to meet these requirements as they see best and do not have to follow every requirement. This means they can still achieve a proper HERS target score using whatever heating or insulation equipment best suits their needs.

ENERGY STAR 3.1 Requirements

  • Energy-Efficient Appliances: Energy Star 3.1 sets stringent energy efficiency criteria for various appliances, such as refrigerators, washing machines, dishwashers, and televisions. These criteria ensure that the appliances consume less energy during operation, leading to lower electricity bills for users.
  • Heating, Ventilation, and Air Conditioning (HVAC) Systems: Energy Star 3.1 defines requirements for HVAC systems, including air conditioners, heat pumps, and furnaces. These systems must meet certain efficiency standards, providing optimal indoor comfort while minimizing energy usage.
  • Windows and Doors: The program outlines specifications for energy-efficient windows and doors, which help maintain indoor temperature and reduce the need for heating or cooling, resulting in lower energy consumption.
  • Insulation and Sealing: Energy Star 3.1 encourages proper insulation and sealing of buildings to prevent energy leaks. Adequate insulation ensures that indoor temperatures remain stable, reducing the need for heating or cooling appliances to work harder.
  • Lighting: The program promotes using energy-efficient lighting, such as LED bulbs and fixtures, which consume significantly less electricity than traditional incandescent bulbs and have a longer lifespan.
  • Water Heating Systems: Energy Star 3.1 sets requirements for energy-efficient water heaters, promoting the use of technologies that minimize energy loss and optimize hot water delivery.
  • Renewable Energy Integration: Energy Star 3.1 encourages the integration of renewable energy sources, such as solar panels or wind turbines, to further reduce dependency on traditional energy resources and decrease greenhouse gas emissions.
  • Building Envelope: The program emphasizes the importance of a well-insulated building envelope, including walls, roofs, and floors, to prevent heat transfer and maintain indoor temperature comfort.
  • Thermal Comfort: Energy Star 3.1 addresses thermal comfort by recommending temperature settings and guidelines that provide comfort for building occupants while conserving energy.
  • Air Quality: The program promotes using energy-efficient ventilation systems to improve indoor air quality, reducing the potential health risks associated with poor air circulation.

For a thorough list of all plan requirements, visit the PDF here.

Benefits of Obtaining the 45L Builder Tax Credit

While ENERGY STAR’s new plan requirements remain stringent, there are several benefits to following these requirements and acquiring the 45L permit.

1. Financial Incentive

The 45L Builder Tax Credit provides builders with a financial incentive of up to $2,500 per energy-efficient dwelling unit constructed and sold. This credit can significantly reduce construction costs and increase the profitability of building energy-efficient homes. Credits are available for single-family homes, manufactured homes, and multi-family homes (when prevailing wage requirements are met).

2. Enhanced Marketability

Energy-efficient homes are in high demand among environmentally conscious homebuyers. By obtaining the 45L Builder Tax Credit, builders can market their properties as eco-friendly and attract a broader pool of potential buyers. They can also increase the price tag of their home to reflect the increase in value from various energy-efficiency upgrades.

3. Energy Savings for Homeowners

Homes constructed according to ENERGYSTAR 3.1 guidelines consume less energy, resulting in lower utility bills for homeowners. Energy-efficient features, such as improved insulation and high-performance windows, reduce energy consumption and long-term savings for occupants.

4. Positive Environmental Impact

ENERGYSTAR-certified homes have a smaller carbon footprint, contributing to reduced greenhouse gas emissions. Builders who qualify for the 45L Builder Tax Credit play a vital role in combating climate change and promoting sustainable construction practices.

5. Competitive Advantage

In an increasingly competitive real estate market, having ENERGY STAR-certified homes eligible for the 45L Builder Tax Credit gives builders a distinct advantage over their non-certified competitors.

6. Long-Term Investment

By adopting energy-efficient building practices and qualifying for the tax credit, builders invest in the long-term success of their businesses. Energy-efficient construction aligns with future trends, regulations, and consumer preferences.

The Path to Qualifying for the 45L Builder Tax Credit Using ENERGY STAR 3.1

Step 1: Familiarize Yourself with ENERGY STAR 3.1 Requirements

Before starting construction, thoroughly review the ENERGY STAR 3.1 guidelines. These requirements cover various aspects, including insulation, windows, HVAC systems, and lighting.

Step 2: Design Your Project for Compliance

Work with architects and engineers to design a home that meets or exceeds the energy efficiency criteria. Utilize energy modeling software to assess the home’s projected performance.

Step 3: Conduct Blower Door and Duct Leakage Tests

Once construction is complete, perform blower door and duct leakage tests to verify the home’s airtightness and overall energy efficiency. These tests are crucial to meeting ENERGY STAR 3.1 requirements.

Step 4: Obtain ENERGY STAR Certification

Hire a third-party verifier to inspect the completed home and confirm compliance with ENERGY STAR 3.1 standards. Once the verification process is successful, obtain the ENERGY STAR certification for the home.

Step 6: Claim the 45L Builder Tax Credit

With the ENERGY STAR certification in hand, you can claim the 45L Builder Tax Credit when filing your federal tax returns. Provide all necessary documentation to support your claim.

Leveraging ENERGY STAR 3.1 to qualify for the 45L Builder Tax Credit is a smart decision for builders looking to increase profitability, marketability, and environmental responsibility. By constructing energy-efficient homes and meeting the stringent guidelines, builders contribute to a more sustainable future while reaping financial rewards.

For builders struggling to meet requirements, hiring an energy consultant can help you bridge the gap in your knowledge and resources.

Frequently Asked Questions (FAQs)

Can individual homeowners claim the 45L Builder Tax Credit?

No, the 45L Builder Tax Credit is specifically for builders or developers constructing energy-efficient homes. Individual homeowners who make energy-efficient upgrades to existing homes may qualify for other tax credits or incentives.

Are there specific requirements for multifamily properties to qualify for the 45L credit?

Yes, multifamily properties must meet certain energy efficiency standards per dwelling unit to qualify for the 45L Builder Tax Credit. The credit amount may vary based on the number of eligible dwelling units.

Is there a deadline for claiming the 45L Builder Tax Credit?

To claim the credit, the home must be sold or leased to a homeowner or tenant during the tax year in which the credit is being claimed.

Can the 45L Builder Tax Credit be carried forward or back if not fully utilized?

Yes, suppose the credit amount exceeds the builder’s tax liability for the current year. In that case, the excess credit can be carried back one year or carried forward for up to 20 years to offset future tax liabilities.

Does ENERGY STAR 3.1 apply to all types of residential construction?

ENERGYSTAR 3.1 primarily focuses on single-family homes, but it can also be used as a guideline for multifamily residential construction and other types of residential buildings.