Author: Ari Marin, SVP, Family Wealth Strategist
August 2022 – The Inflation Reduction Act, “the Act,” amounts to the largest investment encountering climate change in U.S. history and allows Medicare to negotiate drug prices. The Act also increases IRS funding and changes some tax policy and tax credits.
Select Key Updates of New Legislation
Consumer Incentives: The Act provides some incentives for households and businesses in the form of tax breaks and rebates.
- For new cars, a $7,500 tax credit for purchase of “clean” vehicles through 2032. However, limits apply, and available tax credits depend on where the cars are assembled, what they cost and the buyer’s modified adjusted gross income.
- For used cars, the lesser of 30% of the sales price or $4,000 tax credit for some used electric vehicles. The availability of this credit also depends on the buyer’s income, the sales price of the vehicle and other sales qualifications (the car must be at least 2 years old, it must be the first sale of the used vehicle, and buyers can only receive the credit once every three years).
- 30% tax credit for solar panels through 2032. The credit would fall to 26% in 2033 and 22% in 2034.
- Rebates for the purchase of new electric appliances. Funds will be allocated to the states and each state will determine use of those funds. Income limitations and caps may apply on availability of rebates for individual consumers.
- Rebates may also be available for non-appliance upgrades such as ventilation, insulation, air sealing, electric load service upgrades and wiring.
Income Taxation of Businesses: The Act’s tax provisions are designed to not raise taxes directly on middle-class households. Though experts disagree, higher business taxes can add costs elsewhere that affect individuals. This can include increased prices, smaller profits for shareholders and lower wages paid to employees.
- Corporate alternative minimum tax that imposes a 15% minimum tax on “adjusted financial statement income” for corporations with profits more than $1 billion.
- A 1% excise tax on the fair market value of any stock repurchased by “covered corporations” as defined, upon repurchase of stock from their shareholders.
- Extension of Limitation on Excess Business Losses on pass-through businesses for two more years. The law which disallows pass-through owners from using business losses attributable to trades or business exceeding amounts ($250,000 single $500,000 married filing jointly adjusted for inflation) will be extended by 2 years until 2029.
Internal Revenue Service Funding: The Internal Revenue Service increase in funding to improve its customer service and tax enforcement.
Affordable Care Act (ACA): Extension of the expanded ACA program through 2025 for eligible individuals and families who purchase their health insurance through the federal Health Insurance Marketplace.