Last week President Biden signed into law the Inflation Reduction Act of 2022. Here are some applicable sections that may be of importance. The specific tax rules surrounding energy tax credits can be complex, so if you are considering purchasing some energy efficient property let us know and we will be happy to discuss.
- Increased funding of IRS. We are all taxpayers, so this has relevance to everyone. Withholding judgement on general opinions of this institution, the IRS’s technology and service models are antiques at this point. They simply are not serving the public in an efficient way and need additional help. For those worried about additional audits, maintaining proper documentation should continue to be an important taxpayer activity.
- Drug Pricing Reform. This legislation is setup to reshape drug pricing policy in future years. Although the effects are unknown, it is meant to lower drug prices for the top-spending drugs covered by Medicare and ultimately produce savings for the Medicare program. The legislation does not directly impact non-Medicare covered drugs. There will probably be spillover effects though. It does cap the amount that seniors will have to pay for insulin at $35 for a month’s supply (beginning in 2023).
- Extension of Affordable Care Act (ACA) Subsidies. For those individuals buying health insurance through ACA, the enhanced subsidies would have expired at end of 2022 (including those taxpayers whose household income exceeds 400% of FPL). The subsidies have been extended through 2025 for all taxpayers.
- Increased Energy-Efficient Home Improvements. For taxpayers considering energy improvements to their home, there are potentially new credit amounts available beginning in 2023. For 2022, the old rules will still apply. Changes for 2023 include:
- Credit will be equal to 30% of costs for all eligible home improvements and residential energy property expenditures. This would include qualifying air conditioners, water heaters, or furnaces. Also qualifying windows, doors, insulation, or other weatherization measures could be eligible.
- The credit is expanded to cover cost of home energy audits.
- The $500 lifetime limit will be replaced by $1,200 annual limit.
- Increased Residential Energy Efficient Property Credit. This primarily relates to solar, wind, geothermal, biomass, or fuel cell power to produce electricity, heat water, or regulate temperature in your home. The credit was scheduled to be 26% of cost for 2022 and reduced in future years. The current bill increases the credit to 30% for 2022 until 2032.
- Changing Vehicle Energy Credits. The legislation modifies the refundable tax credit for the purchase of “Clean Vehicle” and previously owned electric vehicles. This website is helpful resource in determining qualifying vehicles: https://afdc.energy.gov/laws/inflation-reduction-act
- If you purchased electric vehicle in 2022 before this new bill was signed on August 16, 2022, you can elect to claim the credit under the old rules.
- The definition of qualifying vehicle has changed. Beginning 8/16/2022, final assembly must occur in North America. Consumers need to verify vehicle qualifies under new rules.
- The new bill imposes limits on who can claim credit. If single, income must be below $150,000. For married couples, the income limit is $300,000. Effective 1/1/2023.
- Vehicles prices matter now too. For vans, pickup trucks, and SUVs, the manufacturer sales retail price (MSRP) must be below $80,000 to qualify for credit. For cars, the MSRP must be below $55,000. Effective 1/1/2023.
- Previously, the credit was capped if manufacturer sold over 200,000 cars. That cap is now removed so manufacturers previously ineligible are eligible again (e.g., GM, Toyota, and Tesla). Effective 1/1/2023
- Beginning in 2024, purchasers will have option to take credit as discount at the time of purchase (previously taxpayers had to wait until they filed tax return).
- Additionally, used EVs will now have a separate credit of either up to $4,000 or 30% of price of vehicle (whichever is less).