Back in September, President Biden signed the Inflation Reduction Act of 2022 into law. The legislation includes new tax provisions, extensions, and expansions of tax benefits related to energy efficiency and healthcare. The goal of the legislation, according to the White House, is to make a down payment on deficit reduction to fight inflation, invest in domestic energy production and manufacturing and reduce carbon emissions by about 40 percent by 2030. In addition, the law will allow Medicare to negotiate prescription drug prices and extend the expanded Affordable Care Act program for three years, through 2025.
At the time the bill became law, the White House noted that it will raise $740 billion in tax revenue over the next 10 years and devote $300 billion of that money toward reducing the federal deficit. While the legislation is written for relatively high-level projects, you may be wondering if it will have any effects on you and your household.
Will the Inflation Reduction Act Affect My Taxes?
The new legislation will recover costs from high earners in the form of new taxes. There are no new taxes on families making $400,000 or less and no new taxes on small businesses, so if your income is less than $400,000, you won’t see any changes. High earners and large corporations will bear the vast majority of the tax cuts: the bill creates a 15 percent minimum tax for corporations and levies taxes on corporate stock buybacks.
How Can I Benefit from the Legislation?
Homeowners looking to make some energy efficiency improvements could benefit from some of the provisions in the legislation. The act extends the Nonbusiness Energy Property Credit through 2032 and renamed it “The Energy Efficient Home Improvement Credit.” Beginning in 2023, the credit will equal 30 percent of the costs of all eligible home improvements made during the year. Specific tax refunds include:
- $150 for home energy audits;
- $250 for any exterior door ($500 total for all exterior doors) that meets applicable Energy Star requirements;
- $600 for exterior windows and skylights that meet Energy Star’s most efficient certification requirements;
- $600 for other qualified energy property, including central air conditioners; electric panels and certain related equipment; natural gas, propane, or oil water heaters; oil furnaces; water boilers; and
- $2,000 for heat pump and heat pump water heaters; biomass stoves and boilers. This category of improvement is not limited by the $1,200 annual limit on total credits or the $600 limit on qualified energy property.
The Residential Energy Efficient Property Credit, now called the Residential Clean Energy Credit, was previously scheduled to expire at the end of 2023 but has been extended by the legislation through 2034. The Inflation Reduction Act also increased the credit amount, with a phaseout of the applicable percentage. The credit is 30 percent for 2023 to 2032, 26 percent for 2033, and 22 percent for 2034.
Finally, the Act extends the Clean Vehicle Credit until the end of 2032 and creates new credits for previously owned clean vehicles and qualified commercial clean vehicles. Tax credits include up to $7,500 for new qualified commercial clean vehicles; $40,000 for vehicles over 14,000 pounds; and the lesser of 30 percent of the price of used electric vehicles or $4,000.
If You’re Unsure, Consult a Tax Professional
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