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Increased Tax Credits For Home Builders

Great news for eco-conscious builders and homebuyers! The Inflation Reduction Act, passed in August 2022, significantly boosted the tax credits available for constructing energy-efficient new homes. These changes, effective January 1, 2023, and extending through 2032, offer substantial financial incentives for builders committed to sustainability.

Increased Credit Amounts

Forget the limitations of the previous credit. Starting in 2023, builders can now claim tax credits ranging from $500 to a whopping $5,000 per qualifying home, depending on the level of energy efficiency achieved and adherence to prevailing wage requirements.

  • $2,500 Credit: Awarded for single-family and manufactured homes meeting the Energy Star Residential New Construction Program or Manufactured Homes Program standards.
  • $5,000 Credit: Reserved for homes certified by the Department of Energy as Zero Energy Ready Homes. This top-tier credit signifies exceptional energy performance.
  • Multi Family homes also benefit, with $500 and $1,000 credits available for Energy Star and Zero Energy Ready certifications, respectively.

Prevailing Wage Requirements

To ensure fair labor practices, the credit is conditioned upon paying construction workers prevailing wages in their locality. Failure to comply can result in penalties and the need to rectify wages.

Qualifying Homes and Requirements

  • The home must be located in the US, sold, leased, or rented.
  • It must demonstrably reduce heating and cooling energy consumption compared to national standards.
  • The dwelling unit needs to be at least 50% more energy-efficient than a similar unit built according to the 2006 International Energy Conservation Code, with at least 10% of this improvement attributed to building envelope enhancements.

Project Eligibility

The good news extends beyond single-family homes. Multi-family projects (3 stories or less), assisted living facilities, student housing, and even substantial reconstructions/rehabilitations can all qualify for these tax credits.

Non-Refundable Credit and Basis Adjustment

Remember, the credit reduces your current tax liability but is not refundable. Any unused portion can be carried forward for 20 years to offset future tax bills. Additionally, the cost basis of the home must be reduced by the claimed credit amount.

Stay Informed

The IRS is expected to issue further guidance and clarifications regarding the 2023-2032 credit changes. Stay tuned for updates, and don’t hesitate to reach out to us if you have questions.

Building energy-efficient homes is not just good for the environment; it’s now financially rewarding. Take advantage of these enhanced tax credits and contribute to a more sustainable future!

JS Morlu LLC is a top-tier accounting firm based in Woodbridge, Virginia, with a team of highly experienced and qualified CPAs and business advisors. We are dedicated to providing comprehensive accounting, tax, and business advisory services to clients throughout the Washington, D.C. Metro Area and the surrounding regions. With over a decade of experience, we have cultivated a deep understanding of our clients’ needs and aspirations. We recognize that our clients seek more than just value-added accounting services; they seek a trusted partner who can guide them towards achieving their business goals and personal financial well-being.
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