Inflation Reduction Act

Significant individual provisions of the Inflation Reduction Act include the following:

  •  Enhancement of Internal Revenue Service resources 
    • Through 9/30/2031, additional funds were made available to the IRS to enhance taxpayer services, enforcement, operations support and business systems modernization.
  • The refundable premium tax credit (PTC) available to individuals enrolled in marketplace insurance was extended through 2025.

  • Nonbusiness energy property credit renamed energy efficient home improvement credit was extended to property placed in service before 2033.
    • Increased to 30% of the amount paid for qualified energy efficiency improvements installed and amount paid for residential energy property expenditures paid during the year.
    • The lifetime limit was replaced with a $1,200 annual limit for windows, doors, skylights and $2,000 (after 12/21/22) for specified heat pumps, water heaters, biomass stoves and boilers.
    • Roofs were removed, but air sealing insulation, panelboard and branch circuits or feeders were added.
    •  Additional credit up to $150 is allowed for a home energy audit on a principal residence.
    • Credit was expanded to second homes in the U.S. used as a residence. 
    • Beginning in 2025 a qualified product identification number will be required on your return. 

  • Residential clean energy credit, formerly called the residential energy efficient property (REEP) credit, for solar property was increased and extended to items placed in service before 2035.
    • Added is a credit for qualified battery storage technology expenses after 2022.

  • New qualified plug-in electric drive motor vehicle credit was renamed the clean vehicle credit.
    • Instead of a $7,500 credit subject to manufacturer phase-outs, the new credit is calculated as $3,750 for critical minerals requirement and $3,750 for battery component requirement.
    • In addition, vehicles sold after 8/16/2022 must have final assembly in North America.
    • Minimum battery capacity is increased from four to seven kilowatt-hours.
    • Seller of a new clean vehicle must provide a detailed report to the buyer and the IRS.
    • MSRP cannot exceed $80,000 for vans, SUVs and trucks, and $55,000 for other vehicles.
    • MAGI threshold amounts are $300,000 (MFJ/QW), $225,000 (HOH), $150,000 for others.
    • Numerous other rules also apply.
    • Although buyer can elect to transfer the credit to the dealer for reduced purchase price (after 2023), the buyer bears the risk of not satisfying the MAGI threshold amounts and all other IRS requirements. In such event, the buyer would have to recapture the credit.

  • Previously owned clean vehicles purchased between 2023 and 2032 allows a credit of the lesser of $4,000 or 30% of the vehicle’s sales price (limited to $25,000).
    • MAGI threshold amounts are $150,000 (MFJ/QW), $112,500 (HOH), $75,000 for others.
    • Vehicle must meet requirements applicable to the credit for new vehicles.
    • Model year must be at least 2 years earlier than the calendar year when acquired.
    • Original use must be a person other than the taxpayer.
    • Vehicle must be acquired in a qualified sale through a dealer.

  • SALT limitation was extended through 2026.

Business provisions of the Inflation Reduction Act include the following:

  • Excess business losses of noncorporate taxpayers extended through 2028.
  • Energy efficient deduction updated for installing certain energy-saving systems.
  • Extends, increases and modifies the credit for contractors for building and selling qualified new energy-efficient homes through 2032.
  • Also added is a credit for qualified commercial clean vehicles, which is the lesser of 15% of the vehicle’s basis (30% if not powered by gas or diesel) or the incremental cost over the cost of a comparable vehicle powered only by gas or diesel.
    • Maximum credit is $7,500 if <14,000 pounds or $40,000 for heavier vehicles.

About Judy Murray, CPA