Next month Small Planet Supply will be hosting a webinar on the 45L tax incentive available to residential builders with Greg Lasher.  Greg Lasher works as an energy efficiency consultant representing BetterBuilt NW.  We sat down with Greg Lasher to learn more about Greg Lasher, what next month’s webinar topic and more about BetterBuilt NW.

Could you provide a brief and overview on the Inflation Reduction Act’s 45L tax credit and its primary purpose?  

The 45L tax credit has been around for a while.  The problem with it is that it was often passed as legislation too late to really incentivize energy efficiency construction, so it was not really making an impact.  

When the Inflation Reduction Act (IRA) came along, which was a huge piece of legislation, 45L was just one small part of it. The IRA did take the 45L tax credit for builders and it extended it for 10 years.  That’s the first major difference compared to previous legislation.  It's now a reliable, dependable source of tax credits for builders that want to build high-performing energy-efficient homes that will be around for a long period of time.   

The second part about 45L before the IRA was that the criteria was squishy and not well understood.   Now, there are two different levels of tax credits that are tied to rigorous, dependable, and understandable certifications.  Those are: Energy Star for the $2500 level and the Department of Energy Zero Energy Ready Home (ZERH) for the $5000 level.   So, the IRA took 45L and attached it to these two pre-existing certifications. 

So, was it called 45L before when it was the shorter timelines and much more difficult to figure out, or did it did have a different name?

It was called 45L.

In addition to changing how homes were certified, were other changes made to 45L when it was included under the IRA?  

Yes, under the last December 31, 2022 there was $2,000 credit.  Under the current IRA legislation, the Energy Star certified home credit was increased to $2500 and the ZERH home credit increased to $5000.

What does Energy Star require?

Energy Star requires that a builder sign up for it, which is relatively easy.  A rater, though, also needs to sign up.  That's a little more complicated because the raters also usually need a bit of additional training.  If they’ve not done Energy Star before, they’re going to have to take a test and get certified to do HVAC rating for example. 

There's a component for HVAC companies to play an integral role in certification and a lot of them are not trained or frankly not interested in getting into this.  So, that’s a bit of a stumbling block for builders who want to meet Energy Star standards.    There is a workaround for this situation and that is where that rater can do the HVAC rating instead of the HVAC company.   But I think if there’s anything that anybody who sets up this program would want of this program would want, it would be that the HVAC company does it (the rating) because they're installing it.  Well, first, the HVAC company should be designing, then installing it, and then commissioning the home to Energy Star levels.  And guess what, if for some reason it’s off during the commissioning, they can fix it. Whereas if you have an installer putting it in and then a third-party grading it, you can move forward and get Energy Star but it’s not certain that an identified issue will be fixed. 

So that a lot of that stuff is yet to be worked out and the market around Energy Star is really kind of scrambling to catch up.   

Are there certain types of builders that are more likely to take advantage of the 45L tax credit in your experience?  

Well again, it's very early days, but there is a lot of interest from national production builders because they can sit in their offices and do the numbers.  Builders who build 5,000 homes a year multiply that times $2500 or $5000 and that's a very attractive number.  So, initially there's a lot of interest from the production builders. And that's a good thing.  I think that's what the program design was about.  Because if you wanted to change the way homes are built in America, the bulk of them are built at a production level by large builders.  So, they're very interested and some of them are very good at executing it. Others are struggling a little bit to catch up, but they're very interested in it.

The webinar we’re doing in January is more focused on the middle ground.  Builders who construct 80-100 homes a year, or maybe they build one a year.  Maybe they already know about 45L tax incentives, or they have no idea about it, and they want to know about it. 

The 45L tax credit is focused on speculative building: You build a home and then you put it on the market.   It's not really designed for custom built homes.   However, I stay away from saying that I'm a straight out, because talk to your tax professional.  Because as you'll see in the in the webinar I give, I refer that to that many times, because there’s energy and energy efficiency certifications, we can understand that.  But tax law, that whole different matter and it tends to have a lot to do with the company's particular tax situation.  The company needs to have to have a tax liability to get the credit.  That’s a tricky thing that you can’t really present in a webinar.  The tax credit is intended to go after the largest group of builders out there and that is builders that are building home and putting them on the market for sale because the tax credit goes to the builder not the homebuyer.

The strategy behind giving the credit to the builder is that a home buyer doesn't know what to ask for (in an energy-efficient build).   If you buy a speculatively built home on the market building, you didn’t get any input on the design, you’re just buying a finished product.  The builders are the ones controlling what they build. That's why the focus is on the builder.  They’re trying to give the incentive to the builder before it’s on the market. Once it’s on the market, buyers can understand it. “Oh, it's an Energy Star home. I know what that means that means I'm going to have low bills” etc.

Can you share a little bit about what Better Built Northwest is and what it does?

BetterBuilt NW is sponsored by NEEA, which is a consortium of over 140 utilities in the Northwest (Oregon, Washington, Idaho, and Montana).  BetterBuilt NW is a platform that promotes energy efficiency across several realms. I’m focused single-family new construction.  All components come together on the BetterBuilt NW website which is where builders or trades or raters or verifiers can go to that site and find out different ways to save energy in new construction or single-family homes.

What do you find rewarding or challenging about the work you do?  

Well, I guess the rewarding part is that connection to building.  I think, like most builders, there's a kind of a romance to the idea of building homes. If there wasn’t a romance, I think many builders wouldn’t do it. It’s a complicated, very difficult industry to work in.  But I love building.  I’ve worked for contractors before; I've done some building on the side myself and so I like working with builders. I like the idea of helping builders build more efficient, high-performing sustainable homes.   That’s certainly the positive of it.

The frustration is just how complicated that building process is. Many times, I'm reminded that for many builders, energy-efficiency is one out of 400 or 500 things that they must worry about to get a home built, to continue to run their business, to pay the people that they work with.  So, I’d say sometimes that gets frustrating because we in the energy-efficiency field tend to think about that the thing we’re doing is important thing and it is important to many builders.  But it is only one of many things builders must be concerned about.

 Want to Learn More about the 45L Tax Credit?

If you’re interested in learning more about the 45L tax credit for builders, be sure to register for our January 11 webinar featuring Greg Lasher and Small Planet Supply’s Sarah Nuamah.

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