Energy-Efficient Home Credit and Building Deduction Changes for Builders and Contractors
Under IRS guidance, two federal energy efficiency incentives that builders and contractors may have used have an end date. The Section 45L new energy efficient home credit is not allowed for any qualified new energy efficient home acquired after June 30, 2026, and the Section 179D energy efficient commercial building deduction is not allowed for property the construction of which begins after June 30, 2026. Both changes come from the One Big Beautiful Bill Act, Public Law 119-21. For the 45L tax credit for builders, the date is tied to when the home is acquired, not when construction is completed.
This article summarizes what the IRS says about each incentive, who may claim it, how the amounts are described, and what records support a claim. It covers federal rules only and does not address California incentives or requirements. Builders looking at contractor tax credits and other construction tax incentives should confirm each provision's current status with IRS sources.
What the New Energy Efficient Home Credit Is?
The new energy efficient home credit, found in Section 45L of the Internal Revenue Code, is a credit for eligible contractors who build qualifying energy efficient homes. According to the IRS, an eligible contractor uses Form 8908 to claim the credit for each qualified energy efficient home it sells or leases to another person for use as a residence during the tax year.
The Instructions for Form 8908 describe a qualified home as a dwelling unit located in the United States whose construction is substantially completed after August 8, 2005. The home must also be certified and meet the energy-saving requirements described in the instructions.
This is one of several builder tax credits and deductions addressed in the One Big Beautiful Bill Act (Public Law 119-21). The IRS lists the new energy efficient home credit among the provisions modified by that law. Builder tax credits of this type are claimed home by home on Form 8908.
Who Is an Eligible Contractor for the 45L Credit?
The Instructions for Form 8908 describe the eligible contractor as the person or business that constructed the qualified new energy efficient home. The instructions also address situations in which a party hires a third-party builder, so a contractor should review the instructions for its own arrangement before claiming the 45L tax credit for builders. Eligibility for the 45L tax credit for builders therefore starts with who constructed the home and what certification it has.
The instructions state that a contractor must obtain any certification the dwelling unit needs before the home is acquired and before the credit is claimed. A home the contractor keeps for its own residential use is not treated as acquired.
45L Credit Amounts Per Home
The Instructions for Form 8908 (revised 12/2025) list the energy efficient home credit amount for each qualifying home based on the type of home and the program under which it is certified:
Single-family home meeting ENERGY STAR requirements, not Zero Energy Ready Home (ZERH): $2,500
Single-family home meeting ZERH requirements: $5,000
Multifamily dwelling unit meeting the prevailing wage requirements, not ZERH: $2,500
Multifamily dwelling unit meeting the prevailing wage requirements and ZERH: $5,000
Multifamily dwelling unit not meeting the prevailing wage requirements, not ZERH: $500
Multifamily dwelling unit not meeting the prevailing wage requirements and ZERH: $1,000
These amounts apply per qualifying home. Whether a particular home qualifies depends on its certification and the facts of the sale or lease, so each energy efficient home credit claim should be supported by the records described in the IRS instructions. Contractor tax credits of this kind are determined for each qualified home, and builder tax credits claimed on Form 8908 should tie back to individual sale or lease records.
45L Credit Termination: Homes Acquired After June 30, 2026
The 45L credit termination is stated in IRS guidance on expiring clean energy provisions (FS-2025-05, August 21, 2025): "The credit will not be allowed for any qualified new energy efficient home acquired after June 30, 2026."
The Instructions for Form 8908 (revised 12/2025) state the same limit: a contractor cannot claim the credit for qualified new energy efficient homes acquired after June 30, 2026. The instructions note that this date replaced December 31, 2032.
The instructions explain that the term acquired includes purchased, and that a home leased to a person for use as a residence during the tax year is also treated as acquired. Because the credit is claimed for homes acquired during the tax year for use as a residence, the date of the sale or lease is an important record for any contractor claiming the credit.
Check Your Project Dates
Tax Wealth Consultant provides bookkeeping and tax-planning services for construction businesses in Irvine and Orange County. Schedule a consultation to review how your project, sales, and certification records are organized.
taxwealthconsultant.com | (949) 409-8335
What the Energy Efficient Commercial Building Deduction Is?
The Section 179D deduction, also called the energy efficient commercial buildings deduction, is a deduction for qualifying energy efficient commercial building property. According to the IRS, for property placed in service on or after January 1, 2023, the deduction can be claimed by owners of qualified commercial buildings and by designers of qualifying property installed in buildings owned by specified tax-exempt entities.
The IRS page states that the deduction is the lesser of the cost of the installed property or the maximum savings per square foot. The base amount is $0.50 per square foot at 25 percent energy savings, increasing by $0.02 per square foot for each percentage point above 25 percent, up to $1.00 per square foot at 50 percent savings. The IRS publishes inflation-adjusted amounts, and for 2025 the base range is $0.58 to $1.16 per square foot, while the range with the prevailing wage and apprenticeship requirements is $2.90 to $5.81 per square foot.
Prior deductions claimed for the same building within the lookback period reduce the maximum, as described by the IRS. Anyone reviewing the energy efficient commercial building deduction should confirm the amounts that apply to the year the property was placed in service. Like other builder tax credits and deductions, it depends on certifications and records for each property.
Who May Claim the 179D Deduction: Owners and Designers?
The Instructions for Form 7205 (revised 12/2025) explain that building owners check the Building owner box when they own the building and claim the deduction for qualifying property installed in it. A designer may check the Designer box only when the designer is primarily responsible for designing the property, created the technical specifications for installing it on property owned by a specified tax-exempt entity, and received a written allocation of the deduction from that owner.
The instructions state that a person who merely installs, repairs, or maintains the property is not a designer. For allocated deductions, the allocation must be in writing and meet the requirements of Notice 2008-40, Section 3.04, and a designer may claim only the amount allocated. The building owner must reduce the basis of the property by the amount of the Section 179D deduction allocated.
Contractors should therefore not assume that every contractor working on an energy efficient building qualifies. These contractor tax credits and deductions depend on the role the contractor actually performs and on the documents it holds.
Section 179D Termination: Construction Beginning After June 30, 2026
IRS guidance on expiring clean energy provisions (FS-2025-05, August 21, 2025) states: "The deduction will not be allowed with respect to any property the construction of which begins after June 30, 2026."
The Instructions for Form 7205 (revised 12/2025) also state that Public Law 119-21 terminated the Section 179D deduction for property the construction of which begins after June 30, 2026. The Section 179D deduction is claimed on Form 7205 by individuals and business entities that qualify.
The IRS sources reviewed for this article use the phrase construction begins without adding further detail on this page, so a contractor should keep project start records, such as contracts and dated project documents, to support the date construction began on each project.
Certification and Records Builders Should Keep
Both incentives depend on certification and documentation. For the 45L credit, the Instructions for Form 8908 state that the contractor must obtain any certification the dwelling unit needs before the home is acquired and before claiming the credit. For multifamily homes claimed under the prevailing wage requirements, the instructions state that the contractor must maintain and preserve sufficient records to show compliance.
For Section 179D, the Instructions for Form 7205 state that a certification completed by a qualified individual is required for both building owners and designers. The qualified individual must be unrelated to the claimant and must be a properly licensed engineer or contractor in the jurisdiction of the building, and must represent in writing that they have the required qualifications. For the increased deduction amount, the instructions state that the claimant must maintain and preserve sufficient records, which can include books of account or records of work performed by laborers.
The Form 8908 instructions also state that, generally, the expenses incurred in the construction of each new home must be reduced by the amount of the credit when figuring basis. This is one reason a builder's cost records and credit records should be kept together. Construction tax incentives of this kind are only as strong as the records behind them, and construction tax planning for these incentives should include a record checklist for each project.
Why Construction Bookkeeping Supports These Incentives?
Construction tax incentives such as the new energy efficient home credit and the Section 179D deduction depend on facts that start in the books: which homes or buildings a business built, when each was sold, leased, or begun, what each project cost, and which certifications exist for it.
Construction tax planning is easier when project cost records, sale or lease dates, certification documents, and basis records are organized as transactions occur rather than reconstructed later. A bookkeeping process that tracks each project separately can show which homes were acquired by buyers before or after June 30, 2026, and which projects have supporting certifications.
The IRS sources cited in this article address eligibility, amounts, and termination dates. Whether a specific builder or contractor qualifies depends on its facts, so it is appropriate to review these questions with a tax professional before claiming any credit or deduction.
Next Steps for Builders and Contractors in Irvine and Orange County
Builders and contractors in Irvine and Orange County who have homes or projects near the June 30, 2026 dates should review which projects, sales, and leases fall before or after those dates, and whether certifications and records exist for each. Construction tax planning that reviews these dates early gives a business time to gather missing certifications. A tax advisor can help evaluate how these construction tax incentives, including the 45L tax credit for builders and the Section 179D deduction, apply to specific facts.
Review Your Construction Records
Tax Wealth Consultant provides bookkeeping and tax-planning services for construction businesses in Irvine and Orange County. Schedule a consultation to review how your project, sales, and certification records are organized.
taxwealthconsultant.com | (949) 409-8335
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