The Inflation Reduction Act includes extensive tax provisions – part two

IRA new tax provisions

The Inflation Reduction Act (IRA) has its approval from the U.S. Senate and House of Representatives. The bill should be signed into law shortly by President Biden. The IRA includes significant provisions concerning climate change, health care, and taxes. The IRA also addresses the federal budget deficit. The Congressional Budget Office (CBO) estimates that the IRA will cut the deficit by about $90 billion over the next ten years. The comprehensive $430 billion package is a piece of legislation that will eventually have an impact on the majority of Americans. Visit part one of this two-part blog series to get a summary of some of the new tax provisions. In addition, below are more of the bill’s conditions.

Climate change provisions

Climate and energy provisions

The IRA dedicates about $370 billion to combating climate change and boosting domestic energy production. By 2030, it wants to cut the nation’s carbon emissions by 40%.

The IRA contains new, extended, and increased tax incentives to encourage businesses and individuals to increase their use of renewable energy. For instance, the measure offers tax credits to private companies and public utilities that produce renewable energy or make components for renewable projects like solar panels and wind turbines. Producers of clean energy who pay prevailing wages may also be eligible for tax credits.

Clean vehicle credit

In the IRA, the eligible plug-in electric vehicle tax credit has undergone a considerable revision. Currently, a taxpayer can claim a credit for each new qualified plug-in electric drive motor vehicle placed in service during the tax year. The most you may borrow is $7,500. However, there are some requirements for vehicles.

After a manufacturer sells more than 200,000 plug-in electric drive motor cars for usage in the U.S. after 2009, the credit gradually phases out starting in the second calendar quarter. The manufacturer’s limitation on the number of vehicles qualifying for the credit is gone after December 31, 2022, and the plug-in vehicle credit has been renamed the clean vehicle credit under the IRA.

The bill changes the calculation for the clean vehicle credit. Specifically, a vehicle must meet critical mineral and battery component requirements. Additionally, the law modifies the formula used to determine the clean car credit. A vehicle must specifically adhere to criteria for battery components and essential minerals. Price and income restrictions are also present. For vans, sport utility vehicles, and pickup trucks, the manufacturer’s suggested retail price cannot exceed $80,000. For other vehicles, it cannot exceed $55,000.

A taxpayer is not eligible for the clean car credit if their modified adjusted gross income (MAGI) for the current or prior tax year exceeds:

  • $150,000 for single filers
  • $300,000 for married couples filing jointly
  • $225,000 for heads of household

The IRA also contains a tax credit for a used plug-in electric drive vehicle purchased after 2022. The tax credit equals less than $4,000 or 30% of the vehicle’s retail price. Price and income restrictions are also present.

Home energy improvements

Installing solar panels, energy-efficient water heaters, heat pumps, and HVAC systems, among other home energy efficiency improvements, can result in tax credits for individual taxpayers. A “Clean Energy and Sustainability Accelerator” will also invest in clean energy technology and infrastructure using both public and private capital.

Health care provisions

The IRA forbids future administrations from rejecting negotiations and permits Medicare to negotiate the cost of prescription medications. Additionally, it offers free vaccinations and sets a maximum on the yearly out-of-pocket prescription costs for Medicare members at $2,000 and $35 per month, respectively. Additional provisions to constrain drug costs declare that pharmaceutical companies that raise the prices on drugs purchased by Medicare faster than the rate of inflation rebate the difference back to the program.

The IRA should also lower health care expenditures for Americans of all ages who purchase health insurance coverage through the federal Health Insurance Marketplace. Through 2025, it extends the America Rescue Plan Act’s subsidies increase, which takes the form of refundable premium tax credits. The end of 2022 is the current deadline for these subsidies to terminate.

How the Inflation Reduction Act impacts you

The IRA is a comprehensive piece of law that impacts the majority of Americans and many areas of American industry. Therefore, more information, advice, and regulations are unavoidable regarding its various, extensive provisions. In addition, we’ll inform you of any changes that might impact your financial situation and federal tax liability. Contact our RRBB accountants and advisors if you have questions about the Inflation Reduction Act or any other tax matter.

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