A component of the Energy Policy Act of 2005 that was enacted in August may be of use to developers of affordable for-sale housing. As of January 1, 2006, builders who construct energy efficient homes that are sold for use as the buyer's principal residence will be entitled to certain federal tax credits if certain energy efficiency standards are met. A $2,000 credit is allowed for newly constructed, substantially reconstructed and rehabilitated or manufactured homes that are certified to reduce heating and cooling energy consumption by at least fifty percent (50%) to a comparable home that is built pursuant to the 2003 International Energy Conversation Code ("IECC"). At least ten percent (10%) of those energy savings must be obtained through improvements to the home's building envelope (exterior windows, doors and insulation), while the remainder of the energy savings can be achieved through improvements to the home's heating, ventilation and air conditioning systems. Evidence of such energy efficiency must be certified for each home by a United States Department of Energy approved third-party inspector. There is also a $1,000 tax credit available for new manufactured that are certified to reduce heating and cooling energy consumption by thirty percent (30%) from homes built pursuant to the 2003 IECC.

The Energy Policy Act of 2005 contained a multitude of tax incentives available to homeowners in connection with installation of certain energy efficient appliances as well as the use of solar energy and fuel cells but those credits cannot be claimed by the builders of those homes. The $2,000 and $1,000 credit available to builders described above under Internal Revenue Code Section 45L are specifically not available for the homeowner and serve to reduce that builder's tax basis in the home by the amount of the credit claimed. In addition, those tax credits are available only for homes located in the United States which are actually sold for use as a principal residence in 2006 and 2007 and only with respect to homes that were substantially completed after August 8, 2005. Finally, note that the Energy Policy Act uses the term "contractor" and not builder or developer, so developers of such homes should provide in their construction contracts that the developer, and not the general contractor, will be the one entitled to claim the tax credit because the Act allows only one "contractor" per home to claim the credit.

This new credit could be very useful in affordable housing for-sale developments given that many funding programs used to develop such homes already require certain energy efficiencies be included in the new home; as a result it may not involve much additional cost for the affordable housing developer to be entitled to this tax credit. In addition, the tax credit could also serve as an additional source of construction financing if the affordable housing developer, particularly non-profit developers who would not be able to benefit from the tax credit, were able to do a syndication of its limited partnership or limited liability company interests to parties that could utilize the credit.