President Biden signed the Inflation Reduction Act, a reduced version of the administration’s Build Back Better Act, into law at a White House ceremony on August 16. This legislation is intended to address inflation by paying down the national debt, lower consumer energy costs, provide incentives to produce clean energy, and reduce healthcare costs. The Inflation Reduction Act contains tax savings including, but not limited to:
- Extensions of expanded health care subsidies for taxpayers who purchase health insurance on state health care exchanges. These subsidies, which were set to expire at the end of the year, have been extended through the end of 2025.
- Significant incentives for individuals and businesses to become more energy efficient by extending, increasing, and expanding credits for post-2022 purchases for:
- Purchasing “clean” vehicles such as electric cars, plug-in hybrids, and cars that run on hydrogen fuel cells. The credit, worth up to $7,500 on the purchase of new vehicles, is available until 2032. Similar credits, worth up to $4,000, are available on the purchase of “clean” used vehicles. Qualification for use of the credit is limited if your income or the price of the car exceed certain thresholds;
- Making commercial buildings and residences more energy efficient;
- Making personal residences more energy efficient by offering upfront discounts or tax rebates on home energy projects such as heat pumps, rooftop solar panels, or basic weatherization;
- Building/manufacturing more energy-efficient homes; and
- Producing clean energy fuels
- Doubling the research credit against payroll tax for qualifying small businesses for post-2022 tax years
- Limiting and capping various costs Medicare recipients will have to pay for prescription drugs and certain premiums and co-pays.
The Inflation Reduction Act is expected to raise roughly $450 billion to pay for these tax savings through:
- A new 15% corporate minimum tax on corporations with average book income over $1 billion per year, beginning with the 2023 tax year
- Boosting IRS funding for audit and compliance initiatives intended to result in increased tax collections over the next 10 years
- Imposing a 1% excise tax on certain corporate stock buybacks
- A two-year extension of the section 461(l) loss limitation rules for noncorporate taxpayers, which is now set to expire for tax years beginning after 2028.
There are very specific requirements that must be met to claim the tax benefits listed above. Please contact your Perkins advisor for further details on eligibility.