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On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 (the “Act”) into law. The bill passed Congress with a vote of 220-207 in the House, and 51-50 in the Senate, with Vice President Kamala Harris casting the tiebreaking vote. The Act is massive, with over 300 pages of tax-related changes. It includes, among other provisions:
▪ A 15% corporate alternative minimum tax on large corporations (the corporate AMT had previously been eliminated by the Tax Cuts & Jobs Act of 2017)
▪ A 1% excise tax on stock repurchases by domestic corporations whose stock trades on an established securities market
▪ Significant funding ($80 billion) for the IRS, with $45.6 billion aimed chiefly at enforcement. The IRS has said that its goal is to reduce the tax gap by strengthening its ability to capture revenue from taxes that might not otherwise be collected. Treasury Secretary Janet Yellen has directed the IRS to implement programs in a way that will not increase examinations of taxpayers making less than $400,000.
▪ Green Energy – The majority of the provisions of the Act are devoted to incentives for green energy, including extensions and expansions of current credits, as well as some new credits:
- The credit for electricity produced from renewable resources is extended through 2024.
- The energy investment credit is also extended through 2024.
- The credit for nonbusiness energy property, which expired at the end of 2021, is extended through 2032. This credit, intended for homeowners who install energy-efficient improvements, applies to energy efficient windows, doors, and certain HVAC and heat pump systems. The lifetime maximum for this credit has been replaced with an annual limit of $1,200, so if you spread out your qualifying home projects, you can claim the maximum credit each year. The credit has been renamed the Energy Efficient Home Improvement Credit.
- The residential energy efficient property credit helps individual taxpayers pay for qualified residential alternative energy equipment, such as solar water heaters and solar electricity equipment. It has been renamed the Residential Clean Energy Credit and is extended through 2034.
- The credit for purchase of clean vehicles (plug-in electric and fuel cell) is extended through 2032. The old limit on the number of vehicles produced by the car manufacturer has been removed, but the new credit requires final assembly of the vehicle in North America. The maximum credit remains at $7,500 but includes limitations on income and also on the vehicle’s MSRP.
- Beginning in 2023, a new credit of up to $4,000 is available for the purchase of a previously owned clean vehicle, subject to income limitations, through 2032.
The Inflation Reduction Act does not include a restoration of the full state and local taxes deduction for individuals. Therefore, the $10,000 limit on deducting state and local taxes remains in place for individuals through 2025.
If you have questions about how any of the provisions of the Inflation Reduction Act of 2022 may affect you, please contact us.
The Marston Group, PLC
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