Energy Tax Credits Offer a Smart Way to Close the Gap

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With the recent surge in interest rates, many good multifamily development deals are struggling to get to closing. Energy Efficient Home tax credits can help close the gap.

Financing that was limited by value or cost when rates were low is now limited by debt service. Developers are looking for sound ways to close the gap. At the recent Novogradac 2022 Affordable Housing Tax Credit and Bonds Conference in Nashville (September 28-30), there was considerable discussion about how developers can do just that. One resource can be found in the recently enacted Inflation Reduction Act (IRA) and the extension of the Section 45L Energy Efficient Home tax credit.

Energy-efficient building solutions deliver an assortment of benefits.

Prior to the signing of the IRA, the Section 45L credit had expired. The IRA extends the credit for ten years. For multifamily properties acquired or placed in service next year and beyond, the 45L credit ranges from $500 to as much as $2,500 per unit. Units must be ENERGY STAR® certified and meet the ENERGY STAR® Multifamily New Construction National program requirements (or the regional program requirements). The $500 credit is on qualified units built without prevailing wages. The $2,500 credit is available on projects built with prevailing wages.  While projects will need to meet certain certification requirements, the credit is not competitive and as-of-right. And the credits are allocated and earned upfront when the building is placed in service, adding to their attractiveness.

Section 45L tax credits can complement existing development plans and financing. 

  • For Low Income Housing Tax Credit (LIHTC) developers looking to close the gap, projects qualifying under Section 45L will generate additional tax credits without reducing the eligible LIHTC basis. While the market hasn’t been tested yet, it’s fair to think that the 45L credits should generate additional equity for qualified projects.

  • For AGM clients, the Section 45L credits could be a great fit with their FHA-insured loan. Given the incentives to build green and energy-efficient housing and the prevailing wage requirements that are embedded in the FHA program, developers can get 45L credits for things that are already part of their development plans.

For detailed advice on how to derive the maximum advantage from the Section 45L extension that is part of the Inflation Reduction Act, consult your tax advisor. For more information on FHA financing and Section 45L credits can fit into the capital stack, please contact AGM.

When you need sound financial solutions, rely on AGM.

As a family-owned FHA lender and GNMA seller/servicer with over 30 years of experience, we know the process inside and out. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. We've closed more than $9 billion in FHA-insured multifamily loans nationwide. And we’re proud to say that more than 60% of our borrowers are repeat clients. Count on our experienced team to guide you through the FHA financing process and help you get the deal done.

With FHA financing in place, you can use 45L credits for things that are already part of your development plans. Partner with AGM to secure an attractive multifamily loan that you can count on. Please contact our helpful team today.

About AGM Financial: Founded in 1990, AGM is a leading FHA lender and GNMA seller/servicer. From new construction and substantial rehab to acquisition or refinance — for both market-rate and affordable projects — AGM gets the deal done. Family-owned with over 30 years of experience, the firm has closed over $9 billion in FHA-insured multifamily project loans nationwide. We underwrite, fund, and service all of our loans. Developers and owners can count on AGM to be accessible, transparent, consistent, and ready to lend. From new construction to substantial rehabilitation to acquisition and refinance — for both market-rate and affordable projects — we can get the deal done. To learn more about AGM, call 800.729.4266 or visit https://www.agmfinancial.com/.

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Frank Grosch

Frank Grosch has over 34 years of experience in multifamily finance, development and operations in both for-profit and not-for-profit settings. Prior to joining AGM, Frank participated in the development, acquisition and financing of more than sixty affordable and market-rate multifamily projects with total capitalization exceeding $2.0 billion. He is an honors graduate of the University of Rochester and holds an MBA in finance from the Crummer School of Business at Rollins College in Winter Park, FL. He is the proud dad of two great kids, both in college.