In early fall 2022, President Biden signed the Inflation Reduction Act of 2022, a sweeping piece of legislation that is designed to address some of the significant issues that the U.S. is facing.
Some of those issues include the cost of prescription drugs, healthcare availability, climate change, and inflation. Proponents of the new law say that its various provisions for fighting climate change, supporting clean energy production, and raising tax revenue, will reduce the deficit and in turn, combat inflation. And some of the expanded tax credits in the legislation could benefit you.
The act contains several features that may have an indirect impact on all of us but really won’t have much of a direct impact on most taxpayers. For instance, there is a new corporate minimum tax, but it only applies to companies with more than $1 billion in book income. There is also a new excise tax on the repurchase of stock by publicly traded companies. The act also contains extensions of the current energy producer credit. That may be a big issue for some, but we really don’t have too many clients directly involved in those industries. The act also provides a large increase in funding to the IRS which is designed to increase staffing and modernize computer systems. Hopefully, that funding will increase IRS service and decrease delays, but probably will not have a major impact on most of us.
As to the major tax points, below are those that are most likely to impact our clients:
- Nonbusiness Energy Credits: Most residential energy credits like insulation, windows, doors, and energy-efficient furnaces are extended through the end of 2032 instead of expiring at the end of 2021.
- Residential Clean Energy: The 2022-2032 home solar/wind credit has been increased back to 30% for 2022 and extended for 10 years at that rate.
- Clean Vehicles or Electric Car Credit: The $7,500 maximum credit is back, but only if certain US component thresholds are met.
- Used Electric Vehicles: A new credit equal to 30% (max $4,000) would apply for buyers of electric vehicles that are more than 2 years old. It must be bought from a dealer and be the 1st resale.
- Qualified Refueling Property Credit: The alternative energy refueling station (or home electric car charger) credit was extended through 2032.