45L: A Key Strategy To Consider Before 9.15

It’s easy to underestimate the 45L Tax Credit.  Over the years, the EPAct 179D Deduction has gotten a great deal of press, with 45L often presented as an afterthought, if at all.   However, this oft overlooked incentive brings tremendous benefit, and is a key strategy to consider as you plan for 9/15.   

The 45L credit is a federal tax credit that promotes the construction of energy efficient residential dwellings. The credit is available to builders, developers, and others who build homes for sale or lease.   This one-time incentive can pack quite a punch, with each eligible dwelling unit able to claim $2,000 in tax credits.  The credit can even be claimed retroactively for up to 3 years.

Single and multifamily homes up to 3 stories above grade are eligible for the 45L tax credit, including:

    • Assisted living facilities
    • Campus residential housing
    • For-lease apartment buildings
    • Condominiums
    • Tract and custom single-family homes

Dwelling units within each property are assessed individually.  It’s not an “all or nothing” proposition – some units may meet the criteria, and some may not.  The entire property doesn’t need to qualify.

Dwelling units that meet the following criteria may claim the credit: 

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Consolidated Appropriations Act Of 2021 Brings Much-Needed Relief Along With Timely Extensions

The Consolidated Appropriations Act of 2021 (the “CAA” or the “Act”) was signed into law on December 27, 2020.  At 5,593 pages, the Act is one of the largest in history, and can be viewed in full at here.  The CAA establishes funding for government operations throughout the fiscal year.  It also contains a number of personal and business tax provisions, and those most relevant to Capstan clients will be briefly reviewed here.

EPAct 179D Deduction

Congress crafts tax extension packages annually, and these packages generally extend incentives by a certain number of years.  In exciting news, the CAA permanently extended the EPAct 179D tax deduction.  It will be adjusted for inflation beginning in 2021.  This powerful incentive can help investors more confidently move forward, knowing that they can earn up to $1.80/SF in deductions.  As before, properties eligible for the 179D deduction may be either commercial property or residential rental property at least 4 stories high. New construction and renovation projects are both eligible for this tax strategy. Energy-efficient improvements made to the following building assets can contribute to this benefit:

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