7887.01 / How did the Inflation Reduction Act of 2022 and 2025 OBBB modify the tax credit for new energy efficient homes?

Under the Inflation Reduction Act of 2022, the tax credit for new energy efficient homes under IRC Section 45L was extended through 2032 (and retroactively through 2022, although the pre-existing rules continued to apply for 2022). The tax credit is designed to provide an incentive for builders of both residential homes and multi-family dwellings to use materials designed to reduce energy consumption.

Builders must satisfy certain energy-efficient criteria qualify for the $2,500 credit. Beginning in 2023, single-family homes must satisfy the requirements of the Department of Energy’s “Energy Star Single Family New Homes Program,” Version 3.1 for homes constructed before January 1, 2025 and Version 3.2 for later years. It is expected that additional details will be provided. Manufactured homes are required to satisfy the latest Energy Star Manufactured Home National Program requirements that were in effect on the later of (1) January 1, 2023 or January 1 of the year that is two calendar years prior to the date the dwelling was acquired.

If the single-family or manufacture red home is certified as a DOE Zero Energy Ready Home (ZERH) (or meets the requirements of a successor program implemented by the Department of Energy), a higher $5,000 credit is available.

For multi-family dwellings, a $500 credit is available if the home satisfies the criteria of the Energy Star Single Family New Homes Program and a $1,000 credit is available if the building is ZERH certified.¹

Builders who satisfy prevailing wage standards beginning in 2023 qualify for an enhanced tax credit (the base credit amount multiplied by five; note that the apprenticeship requirements do not apply to the Section 45L credit). To qualify, workers must be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such residence is located as most recently determined by the Secretary of Labor (see Q - Q for more details on the prevailing wage and apprenticeship requirements).

To qualify for the tax credit, the taxpayer must obtain an audit that provides an estimate of the energy and cost savings of each energy-efficient home improvement. Beginning in 2024, that audit must be conducted by a Qualified Home Energy Auditor, which is an auditor who has been certified by one of the certification programs listed by the Department of Energy on its certification programs page for the energy efficient home improvement credit. For 2023, a transition rule applies so that the auditor was not required to be a Qualified Home Energy Auditor.