Inflation Reduction Act is Law, Now What?

Earlier this year, after passing the House of Representatives and the Senate, the Biden Administration signed the Inflation Reduction Act into law.

Seen as a landmark win for climate conservation, this bill is using a historic down payment to help reduce carbon emissions, invest in clean energy infrastructure, as well as expand access to affordable health care and bolster the Internal Revenue Service (IRS).

We are here to break down what this law aims to do and how it will affect you as a taxpayer.

What the Law Will Do.

• Combat inflation with a historic deficit reduction enactment
  
• Lower energy costs, increase cleaner production, reduce carbon emissions
  
• Grant Medicare the right to negotiate drug prices and limit out-of-pocket costs to $2,000
  
• Lower ACA health care premiums
  
• Force large corporations and the 1% to pay their share
  
• Closing tax loopholes by denying new taxes for families earning $400,000 or less

Investment Estimates

Below is a breakdown of the estimated money being invested by our government to the different areas supported by the Inflation Reduction Act.

These estimates are provided by a combination of the Joint Committee on Taxation and the Congressional Budget Office.

This is a significant financial commitment towards our country’s infrastructure, some of the biggest in our nation’s history. What it tells us is that our elected officials are getting serious about the issues at hand.

How This Will Affect You as a Taxpayer

This landmark investment is going to affect Americans in many ways, but we want to focus on the opportunities it creates to find some relief on your tax sheets.

Energy Efficient Home Improvement Credit.

To begin with, the Energy Efficient Home Improvement Credit, previously referred to as the Nonbusiness Energy Property Credit, has been extended through 2032.

Come 2023, the allowed credit will be equal to 30% of costs on all eligible home improvements to improve energy efficiency.

• The $500 lifetime limit on total credit amount will be increased to $1,200/year.
• Renewed Annual limits for qualifying home improvements:
  • $150 for home energy audits.
  • $250 for any exterior door ($500 total for all exterior doors) that meet applicable Energy Star requirements.
  • $600 for exterior windows and skylights that meet Energy Star 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.
  • $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.
  • Solar panel roofing no longer qualifies.

Residential Clean Energy Credit.

In addition, taking place of the expiring Residential Energy Efficient Property Credit is the Residential Clean Energy Credit. Now extended through 2034, this credit has been increased with lowering percentages in the early 2030s.

Amount of Credit:

• 30% for 2023–2032
• 26% for 2033
• 22% for 2034

While this improved credit will no longer apply to biomass furnaces and water heaters (now covered under the Energy Efficient Home Improvement Credit), it will apply to specific battery storage technology.

Clean Vehicle Credit.

Similarly, this existing credit is seeing a lengthy extension. Now available through 2032, the inflation Reduction Act is also granting new credits for pre-owned clean vehicles and qualifying commercial vehicles.

Check out this article from Electrek for more details, including a list of eligible vehicles!

The credits for eligible vehicles are as follows:

• $7,500 for the purchase of new qualified commercial clean vehicles
• $40,000 for vehicles over 14,000 pounds
• Less than 30% of the price of used electric vehicles, or $4,000.

Do note that various limitations apply, based on suggested retail prices from manufacturers and adjusted gross income (AGI) for families hoping to qualify.

Taxes & IRS Funding.

Furthermore, the Inflation Reduction Act is also funding improvements to the Internal Revenue Service (IRS) and the Internal Revenue Code. The hope is that these extended tax credits will save you money come tax day, however, they may not affect your individual tax bill.

IRS Improvements:

• 15% minimum tax on corporations with over $1 Billion is revenue
• 1% excise tax on corporate share buybacks
• Roughly $79 Billion of additional funding for the IRS over 10 years

Notably, the IRS Commissioner, Charles Rettig, wrote to the Senate and said, “These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans…” Other resources will be invested in employees and IT systems that will allow us to better serve all taxpayers, including small businesses and middle-income taxpayers.”

This is a heartening message to hear alongside the funding that is being implemented, for the aim is not to empty the pockets of everyday-hard-working Americans, but improve the IRS’ workforce and security in hopes to best serve the welfare of all.

Now What?

This new law contains a lot of information, and is not for the faint of heart in exploring its details and how they pertain to you. There are some true benefits to be reaped with this new law, whether it is home or vehicle tax credit, better access to affordable health care, or a confidence in knowing our elected officials are serious about taking care of our environment.

Lastly, if you would like to talk to our team of professionals about how this can benefit your financial situation, give us a call at 206.397.4890 or reach out at oscfp.com.

Sources.

• Hansen, Toshia. “Tas Tax Tip: What the Inflation Reduction Act Means for You – Tas.” Taxpayer Advocate Service, Internal Revenue Service, 12 Sept. 2022, https://www.taxpayeradvocate.irs.gov/news/tas-tax-tip-what-the-inflation-reduction-act-means-for-you/


• “Inflation Reduction Act One Page Summary.” Senate Democrats, 27 July 2022, https://www.democrats.senate.gov/imo/media/doc/inflation_reduction_act_one_page_summary.pdf