March 21, 2024

Affordable housing developers can now benefit from 45L tax credits significantly expanded by the Inflation Reduction Act (IRA). The maximum tax credit has nearly tripled with it now being set at $5,000 per unit. Additionally, every multi-family building is now eligible regardless of height. Coordinating with Low Income Housing Tax Credit (LIHTC) is much easier than before and developers have more of a runway to plan. However, to take advantage of these benefits, affordable housing developers must be proactive because starting in 2023, 45L credits can no longer be claimed retroactively.

Up to $5,000 Per Unit

Two credit paths now exist for affordable housing developers utilizing HUD financing. Developers now have an option to pursue either a $2,500 or a $5,000 per unit tax credit. Meeting both energy efficiency and construction related criteria is required to obtain $2,500 whereas additional criteria for meeting indoor air quality measures and solar readiness is required for the $5,000 credit.

No Height Limit

Dwelling units located within multifamily buildings of any height including mid-rise, high-rise, and mixed-use are now eligible for 45L credits. In prior years, 45L credits were limited to strictly low-rise residential projects. Because of this, 45L credits can now also be used simultaneously with the 179D energy efficient tax deduction on all multifamily buildings four stories or greater.

No LIHTC Limits

45L credits no longer reduce basis for calculating LIHTC so that’s no longer a hurdle when paired with LIHTC. As a result, all affordable housing developments are viable candidates for 45L credits; not just those with “excess” or extra basis.

10 Year Runway

The recent 10-year extension brought on by the IRA is the longest in 45L’s history. Now that affordable housing developers have more time to plan, there is opportunity to plan for and monetize 45L credits simultaneously with LIHTC.

Proactive Planning Pays Off

Because of these changes, 45L credits are now more attainable for affordable housing developers than in prior years, as long as they are planned for. With the increased value in credit, the removal of prior limitations, and staying power through the end of 2032, pursuing these tax credits can no longer be ignored. Those looking to maximize and secure 45L credits should assess their development pipeline immediately and as early in the preconstruction process as possible.

KBKG and Clark Nuber partner together to provide you with comprehensive evaluations on your eligibility for 45L credits. We’ve put together this downloadable handout for your reference. For more information, contact us and KBKG to assist your organization.

© Clark Nuber PS, 2024. All Rights Reserved.

 

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.