Maximizing Green Building Tax Incentives for Multifamily Developers and Homebuilders

Green building tax incentives: As the world prioritizes sustainability, green building practices have become increasingly important for developers and builders. 

With the environmental benefits, there are also many financial incentives for those who incorporate green building practices into their projects. 

The Inflation Reduction Act (IRA) offers several federal tax incentives for green building, including the 45L Tax Credit, 179D Tax Deduction, and 25C Tax Credit.  

Let’s explore these tax incentives and discuss how multifamily developers and homebuilders can maximize their benefits.

The 45L Tax Credit – Green Building Tax Incentive

The 45L Energy-Efficient Home Tax Credit offers contractors and builders a way to offset the expenses of constructing energy-efficient single-family or multifamily properties. 

45L provides a dollar-for-dollar reduction in their taxes owed or paid during the tax year when the property is sold or leased.

The Internal Revenue Code (IRC) Section 45L offers a credit per dwelling unit for every newly constructed energy-efficient home. 

This credit applies to homes built by eligible contractors and acquired by individuals for residential use within the tax year. It can be transferred to the homeowner and utilized on an amended tax return or carried forward for a maximum of 20 years.

To learn more about the 45L Tax Credit and its requirements, refer to our comprehensive guide: Everything You Need to Know About the 45L Tax Credit.

Or visit our 45L Tax Credit for Builders and Contractors page.

45L Tax Credit details on Single Family Homes Green Insight LLC

Single-family homes are eligible for a $2,500 credit for obtaining ENERGY STAR for Homes certification and a $5,000 credit for a DOE Zero Energy Ready Home certification. Manufactured homes are eligible for the $2,500 credit as well for receiving the ENERGY STAR Manufactured Homes certification.

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Multifamily homes are eligible for a $500 credit for ENERGY STAR Multifamily New Construction certification, a $1,000 credit for DOE Zero Energy Ready Home certification, a $2,500 credit for ENERGY STAR Multifamily New Construction certification with prevailing wage requirements, and a $5,000 credit for DOE Zero Energy Ready Home certification with prevailing wage requirements. Our Inflation Reduction Act FAQ page provides more details

The 179D Tax Deduction – Green Building Tax Incentive

Section 179D is a tax credit provided by the federal government. It allows commercial building owners and primary designers of public building projects to be eligible for a deduction if they include specific sustainable building components in their projects.

The EPAct 179D tax deduction, also known as the Energy Policy Act, offers a sliding scale deduction ranging from $2.50 to $5.00 per square foot. 

This deduction applies to the implementation of energy systems that can reduce energy and power costs by 25% to 50% compared to buildings that meet the minimum requirements set by ASHRAE Standard 90.1-2019. 

To qualify for this deduction, retrofits must demonstrate an improvement of 25% to 50% in terms of existing building performance (EUI).

To understand the eligibility criteria and how to take advantage of the 179D Tax Deduction for multifamily buildings, we recommend reading our comprehensive guide: Your Essential Guide to the 179D Tax Deduction.

The 25C Tax Credit – Green Building Tax Incentive

For homeowners who want to improve the energy efficiency of their homes, the 25C Tax Credit is a highly beneficial incentive. 25C provides individuals with substantial financial savings by reducing their tax bill if they invest in energy-efficient upgrades.

Updated under the Inflation Reduction Act, 25C is a non-refundable credit that aims to promote energy efficiency. It helps homeowners lessen their tax burden by installing qualifying upgrades like insulation, door and window sealing, electrical improvements, and more.

Previously, the credit was limited to $500. However, starting in 2023 and continuing until 2032, the credit has been increased to 30% of the total installation costs. So homeowners can now receive up to 30% of their expenses back, potentially amounting to annual tax credits of up to $3200, depending on the extent of their upgrades.

To learn more about the 25C Tax Credit refer to our detailed guide: What’s the 25C Tax Credit? (And How Can You Get It?).

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Are you currently involved in the construction or renovation of a building? 

If you are, you will be directly affected by green building tax incentives. 

Your project has the potential to qualify for significant tax credits amounting to thousands of dollars. For instance, if your single-family or manufactured home meets ENERGY STAR requirements, you could be eligible for a tax credit of $2,500. If your home is certified as a DOE Zero Energy Ready Home (ZERH), you may qualify for an even higher tax credit of $5,000.

Maximizing Green Building Tax Incentives

To maximize the benefits of the 45L Tax Credit, 179D Tax Deduction, and 25C Tax Credit, multifamily developers and homebuilders should consider the following strategies:

  • Understand the Requirements: Familiarize yourself with the eligibility criteria and requirements of incentives to ensure your projects meet the qualifications.
  • Collaborate with Energy Consultants: Partner with experienced energy consultants specializing in green building and tax incentives. They can guide you on how to meet the requirements and optimize energy efficiency in your projects.
  • Integrate Energy Efficiency from the Start: Incorporate energy-efficient design and construction practices from the initial stages of your projects. This will ensure that your buildings meet the necessary standards to qualify for the tax incentives.
  • Maintain Detailed Documentation: Keep thorough records of energy-efficient features, certifications, and any supporting documentation required for claiming the tax incentives. This documentation will be crucial when applying for the incentives.
  • Stay informed about updates to the green building tax incentives to adapt your strategies and take full advantage of the available benefits.

These incentives contribute to a more sustainable future and provide financial advantages that make green building more accessible and attractive.

The Inflation Reduction Act (IRA) offers valuable tax incentives for multifamily developers and homebuilders who prioritize energy efficiency and sustainable building practices. 

By understanding the requirements and strategically utilizing tax credits like 45L, builders can create environmentally friendly buildings while maximizing their financial benefits.

Green Insight can help you save big

Consulting with experienced professionals and staying up-to-date with the latest regulations will help you navigate the complexities of green building tax incentives and ensure you receive the maximum benefits available.

For more information on green building tax incentives and how to optimize your projects, contact us today. We are committed to helping you achieve your sustainability goals while maximizing the financial advantages of these incentives.

What’s the 25C Tax Credit? (And How Can You Get It?)

For homeowners looking to make energy upgrades to their homes, the 25C Tax Credit is one of the most worthwhile incentives out there. It gives people shopping for energy-efficient home upgrades sizable financial savings by reducing their tax bill.

25C is a non-refundable credit recently updated under the Inflation Reduction Act. It encourages energy efficiency by lowering a homeowner’s tax burden if they install qualifying upgrades such as adding insulation, sealing doors and windows, making electrical improvements, and more.

The credit was previously capped at $500 but starting in 2023, the credit increases to 30% of total installation costs through 2032. So, 25C will give up to 30% back and your annual tax credits could total $3200, depending on your upgrades.

The credit is for heat pumps, heat pump water heaters, biomass stoves/boilers, building envelope components (windows, doors, insulation, and air sealing), energy audits, and qualifying electrical upgrades.

25C is not an unlimited credit and is capped at $2,000 annually for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and biomass boilers.

And there’s a $1,200 yearly tax credit cap for all building envelope components, home energy audits, and energy property.

So, if a homeowner installs a heat pump and makes energy-efficient building envelope upgrades, they could get up to a $3,200 credit.

There is a lifetime cap of $600 per measure (exceptions listed below).

Building Envelope Upgrades. This includes weatherization improvements (like insulation materials (rolls, spray foam, etc.), air sealing supplies or systems, and ENERGY STAR-certified windows and doors.

  • ENERGY STAR-certified exterior doors (30% of costs up to $250 per door, up to a total of $500).
  • ENERGY STAR-certified exterior windows and skylights (30% of costs up to $600)
  • Insulation materials or systems and air sealing materials or systems (30% of costs)

Home energy audits (30% of costs up to $150)


Energy-efficient upgrades (30% of costs, including labor, up to $600 for each item) satisfying the energy efficiency requirements (See Q1 below):

  • Central air conditioners.
  • Natural gas, propane, or oil water heaters.
  • Natural gas, propane, or oil furnaces and hot water boilers.
  • Improvements to or replacements of panelboards, sub-panelboards, branch circuits, or feeders that are installed along with building envelope components or other energy property and enable its installation and use.

Heat pumps and biomass stoves and biomass boilers (30% of costs, including labor) satisfying the energy efficiency requirements (See Q1 below):

• Electric or natural gas heat pump water heaters.
• Electric or natural gas heat pumps.
• Biomass stoves and biomass boilers.

Q1: What are the energy efficiency requirements for 25C?

The following energy efficiency requirements must be met to qualify for the Energy Efficient Home Improvement Credit (Courtesy of the IRS. And you can learn more by reading the IRS Fact Sheet):

  • Exterior doors: must meet applicable ENERGY STAR requirements.
  • Windows and skylights: must meet ENERGY STAR’s most efficient certification requirements.
  • Insulation materials or systems and air sealing materials or systems: must meet the criteria established by the International Energy Conservation Code (IECC) standard in effect at the start of the year that is two years prior to the year the materials or systems are placed in service. For example, materials or systems placed in service in 2025 must meet the criteria established by the IECC standard in effect on January 1, 2023, to qualify for the Energy Efficient Home Improvement Credit in 2025.
  • Electric or natural gas heat pumps, electric or natural gas heat pump water heaters, central air conditioners, natural gas or propane or oil water heaters, natural gas or propane or oil furnaces or hot water boilers: must meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency (CEE) that is in effect as of the beginning of the year in which the property is placed in service. See also the CEE Directory of Efficient Equipment for a searchable database of qualifying equipment.
  • Oil furnaces or hot water boilers can alternately qualify if they (1) meet or exceed 2021 ENERGY STAR efficiency criteria and are rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of an eligible fuel; or (2) if placed in service after December 31, 2026, achieves an annual fuel efficiency rate of not less than 90 and is rated by the manufacturer for use with fuel blends at least 50 percent of which consists of an eligible fuel.
  • Biomass stove or biomass boilers: must have a thermal efficiency rating of at least 75% (measured by the higher heating value of the fuel).
  • Panelboards, sub-panelboards, branch circuits, or feeders: must be installed according to the National Electric Code and have a load capacity of 200 amps or greater.

Q2: Can a taxpayer claim 25C tax credits for updates on a newly constructed home?

Under the Energy Efficient Home Improvement Credit: a taxpayer can claim the credit only for qualifying
expenditures incurred for an existing home or for an addition to or renovation of an existing home, and not for a newly constructed home.

Q3: Labor Costs: Can a taxpayer homeowner include labor costs when calculating the credits?

When calculating the Energy Efficient Home Improvement Credit, a taxpayer mayThey can include the labor costs for the onsite preparation, assembly, or original installation of residential energy improvements such as central air conditioners; natural gas, propane, or oil water heaters; natural gas, propane, or oil furnaces or hot water boilers; electric or natural gas heat pumps; electric or natural gas heat pump water heaters; biomass stoves or biomass boilers; or improvements to panelboards, sub-panelboards, branch circuits, or feeders.

In contrast, a taxpayer may not include the labor costs for qualified energy-efficient building envelope components including a qualifying insulation material or system, exterior window, skylight, or exterior door. Thus, for an energy-efficient building envelope component for which a taxpayer pays a fixed price, the taxpayer must make a reasonable allocation between the qualifying cost of the property and the nonqualifying labor cost of the installation.

Q4: How many times can I use the credit?

25C resets every year, so if you claim a heat pump installation and insulation this year, you can use it again in the future when you upgrade your electrical panel.

Q5: How long is 25C available?

The credit is available until 2032 when it is expected to go down.

Are you ready to take advantage of the 25C Tax Credit?

The Green Insight team will guide you through the process and ensure you meet all the energy efficiency requirements so you can claim your credits.

Contact us today to discuss how we can help you claim your credits and have a more energy-efficient home.

Learn about the 179D Tax Deduction and 45L Tax Credit, also part of the Inflation Reduction Act.

Everything You Need to Know About the 45L Tax Credit

If you’re a builder or developer, there’s a chance you’re not taking advantage of the 45L Tax Credit for Builders, an incentive to build greener and more environmentally sustainable residential properties.

In this article, we will tell you everything you need to know about this credit and how you can qualify to begin saving money today.

What is the 45L Tax Credit?

Named after section 45L of the Internal Revenue Code, 45L Tax Credit, this federal tax credit is issued to developers and contractors who construct energy-efficient residential properties.

This tax credit was originally established by the Energy Policy Act of 2005, which called for the development of grant programs and tax incentives to promote energy efficiency in housing and vehicles.

The 45L was recently reinstated as part of the Inflation Reduction Act of 2022 (IRA). This federal law was written to curb recent inflation through several means including investing in promoting clean energy alternatives. This initiative includes providing substantial incentives for the design and construction of energy-efficient residential buildings.

As part of the IRA, the 45L tax credit gives eligible contractors up to $5,000 for each qualifying unit that is either constructed or completely renovated.

45L-Tax-Credit-Multifamily-Homes-Green-Insight
Multifamily homes are eligible for a $500 credit for ENERGY STAR Multifamily New Construction certification, a $1,000 credit for DOE Zero Energy Ready Home certification, a $2,500 credit for ENERGY STAR Multifamily New Construction certification with prevailing wage requirements, and a $5,000 credit for DOE Zero Energy Ready Home certification with prevailing wage requirements.

“The 45L tax credit gives eligible contractors up to $5,000 for each qualifying unit that is either constructed or completely renovated.”

What Are the Requirements?

Most of the information you find on the 45L tax credit will contain words like “eligible” when discussing who qualifies for the incentive. Part of the federal law that established this credit delineates requirements for what types of buildings qualify to receive the credit.

First, eligible properties do not necessarily have to be new construction projects to qualify. Residential properties that have been appreciably remodeled or renovated to meet energy efficiency standards are also eligible to qualify.

Before the additional changes set forth by the IRA that came into effect in 2023, residential buildings that qualified had to show proof of consuming at least 50% less energy through heating and cooling. In addition, the building envelope needed to account for at least one-fifth of these improvements to energy use. Finally, the building needed to be certified by an independent agency. Learn more on our detailed Inflation Reduction Act FAQ page: Questions on the 45L Credit and 179D Deduction.

Energy Start and Zero Energy Ready Home (ZERH) certification logos

Changes to the requirements went into effect starting January 1, 2023. One change is the residential and mixed-use buildings are required to obtain either an ENERGY STAR or Zero Energy Ready Home (ZERH) certification. These certifications indicate that the buildings meet both the national and state requirements for energy efficiency as laid out by the U.S. Environmental Protection Agency (EPA).

Additionally, if the property is for mixed-use purposes, 50% of the property’s total square footage must be made of residential units and common areas. This does not include any parking garages that are part of the property.

Eligible contractors of multi-family residential properties now also have the option of higher 45L tax credits if they follow prevailing wage requirements. These wages are the average wage a specific type of laborer can expect to receive in a specific region. Contractors who wish to take advantage of the 45L credit bonus must prove that all workers on their construction project earn a wage equal to or greater than the prevailing wage.

Want to learn more? We created a detailed page on How to Get the Most from the Inflation Reduction Act.

What are the Requirements for Single-Family Homes to Qualify?

To qualify for a 45L tax credit, your energy-efficient construction should demonstrate heating and cooling energy consumption that falls below national energy standards. Modern construction already keeps energy efficiency in mind in design and building to keep up with current trends and the consumer’s desire to own greener homes.

This means that the property must meet or exceed Energy Star 3.1 requirements which consider things such as:

  • The dwelling’s thermal enclosure system
  • Heating, ventilation, and air conditioning system (HVAC)
  • Water management systems

The types of residential buildings that qualify for the tax credit, whether new constructions or substantially rehabilitated dwellings include:

  • Custom and tract single-family homes
  • Townhomes
  • Duplexes and triplexes
  • Apartment complexes
  • Student housing
45L Tax Credit details on Single Family Homes Green Insight LLC
Single-family homes are eligible for a $2,500 credit for obtaining ENERGY STAR for Homes certification and a $5,000 credit for a DOE Zero Energy Ready Home certification. Manufactured homes are eligible for the $2,500 credit as well for receiving the ENERGY STAR Manufactured Homes certification.

How much credit is received depends on whether they are certified as ENERGY STAR or ZERH. For example, a single-family home can earn a $2,500 credit if certified according to the ENERGY STAR Single Family New Homes Program. A $5,000 credit can be earned for single-family homes certified as the Department of Energy’s Zero Energy Ready Home program.

Learn about the 25C energy efficiency tax credit, also part of the Inflation Reduction Act.

We have a page packed with information on How to Get the Most from Tax Credits and Incentives.

Who Can Benefit from the 45L Tax Credit?

Two parties can directly and indirectly benefit from taking advantage of the 45L tax credit: contractors and developers and homeowners.

Qualified contractors and developers directly benefit when they design energy-efficient buildings and construct them using energy-efficient materials. While these materials cost more, this extra cost is offset in a couple of ways. First, the 45L tax credit can help builders recoup some of that extra money. Also, the required certification allows developers to advertise the building as “green” which attracts consumers who are seeking more sustainable housing that will help their monthly utilities budget.

Consumers also indirectly benefit from living in energy-efficient homes. More efficient heating, air conditioning, and lighting mean lower utility bills each month as well as peace of mind knowing you are reducing your carbon footprint. Additionally, the resale value of the home could be higher due to consumers looking for energy efficiency in their new home search.

We can help you save money with the 45L federal tax credit.

Are you ready to take advantage of the 45L federal tax credit as a builder or developer?

Green Insight can partner with you to ensure you meet all the energy efficiency requirements on your next residential building project. Contact us today to discuss how we can help you build greener while getting money back.

Or grab your FREE guide, “How to Get the Most from the Inflation Reduction Act.