Inflation Reduction Act

Published On: August 29th, 2022Categories: Accounting, Taxes

The Inflation Reduction Act 2022 (H.R. 5376) was officially signed into law by President Biden. This new law brought many changes and updates to existing laws. We’re taking a look at the parts of the law that may impact your tax situation, including:

  • Updates to the federal credit for energy-efficient vehicles
  • Tax rebates for home improvements
  • Corporate alternative minimum tax

Energy-Efficient Vehicles
The federal tax credit for up to $7,500 for energy-efficient purchasers has been extended through 2032. Additionally, the credit now includes up to $4,000 (or 30% of the value) for used versions. But, there are new eligibility factors for both the purchaser and the manufacturer.

  • There are income ceilings based on your filing status.
    • For new vehicles, single taxpayers with an income under $150,000 ($300,000 for married or $225,000 for head of household) are eligible for the credit.
    • For used vehicles, single taxpayers with an income under $75,000 (married $150,000 or head of household $112,500) are eligible for the used credit.
  • The credit is also dependent on the manufacturer’s retail suggested price (MSRP) of the hybrid plug-ins or all-electric vehicles.
    • New cars with an MSRP under $55,000.
    • New SUVs, trucks, and vans with an MSRP under $80,000.
    • Used vehicles that are at least two years old and cost $25,000 or less.
  • The production cap has been lifted, making manufacturers like Tesla, General Motors, and Toyota eligible again.
  • Vehicles produced after August 16th, 2022, must have the final assembly in North America.
  • Key components used to manufacture the electric vehicle must be primarily sourced in North America. 40% currently, and by 2027 this threshold will be 80%.

Tax Rebates For Home Improvements
Two home improvement credits were also part of the Inflation Reduction Act.

  1. Energy Efficient Home Improvement Credit
    • Replaces the expired Nonbusiness Energy Property Credit.
    • The credit is limited to $1,200 per year.
      • $600 for windows, $250 for exterior doors, and $500 in the aggregate to all exterior doors.
    • Also available for qualified central air conditioners, electric panels, and certain related equipment.
    • The credit is increased to $2,000 for electric or natural gas heat pump water heaters or heat pumps.
  1. Residential Clean Energy Credit has been extended through 2034.
    • Credit is for installing clean household energy such as solar, wind, or geothermal.
    • Backdated to include systems installed in 2022.
    • The credit amounts are broken down by year of installation:
      • 30% for property placed in service after 12/31/21 and through 2032
      • 26% in 2033
      • 22% in 2034

Corporate Alternative Minimum Tax
Along with these tax credits came a new revenue-generating tax in the form of the 15 percent corporate alternative minimum tax or book minimum tax. This applies to businesses with a book income in excess of $1 billion over three-taxable years. However, this does exclude S corporations, regulated investment companies, and real estate investment trusts.

This is only a portion of what was included in the complete Inflation Reduction Act (H.R. 5376), and more clarification is expected from the IRS. As always, we will be sure to keep you updated on anything that may impact your situation.

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About the Author: Agnes Sikora

A graduate of Columbia College of Missouri, Agnes has accounting and finance degrees with a minor in management, making her a wealth of knowledge for our clients. "I enjoy working with small businesses. Every business is unique and challenging in its own way. The frequent tax law changes keep me on my toes every year, too." Agnes enjoys partnering with our experienced tax team, who also have a plethora of knowledge. Together they make a great team to meet any of our client's needs. Outside of work, Agnes enjoys spending time with her husband, two boys, and their dog.