Inflation Reduction Act of 2022

Below are the major tax provisions contained within the Inflation Reduction Act signed into law on August 16th, 2022. Of particular note are increased tax credits for residential energy credits, electric vehicles, used “clean” vehicle credit, and modification of the energy efficient commercial building deduction.

Corporate Tax Provisions:

New 15% Corporate Alternative (“Book”) Minimum Tax (12/31/22)

• Only about 150 companies expected to be impacted
• Applies if the average adjusted financial statement net income for the past three years exceeds $1 billion (aggregation rules apply)
• Effective for tax years beginning after 12/31/2022

New 1% excise tax on the repurchase of corporate stock (12/31/22)

• Impacts “covered” corporations whose stock traded on an established security market
• Applies to the fair market value of stock repurchased during the entire tax year
• Exceptions for tax-free reorganizations, repurchases of $1 million or less, ESOPs, RICs, REITs, dividends

Individual Tax Provisions:

Excess Business Losses

• Extended two more years, now expires for tax years ending before 1/1/2029

Affordable Care Act – Premium Tax Credit (PTC)

• American Rescue Plan Act (ARPA) beneficial rules extended to apply for 2023-2025 (Increased PTC credits and availability to families over 400% of the poverty line)

IRS Funding:

~$80 billion in total, with $45 billion for enforcement and $25 billion for operations support. Treasury Department officials have said they do not plan to increase audits on small businesses or households making under $400,000 a year.

Highlighted Energy Tax Credits and Deductions:  

Nonbusiness energy property credit (12/31/22)

• Credit increased from 10% to 30% of the amount paid by the taxpayer for qualified energy efficiency improvements (doors, windows, skylights, insulation, heat pumps, water heaters, furnaces, water boilers, etc.)
• Repeals $500-lifetime limit and now has a $1,200 annual limitation instead

Residential energy efficient property credit (12/31/22)

• Increases credit for qualified expenditures made by a taxpayer for residential energy efficient property (solar electric, solar water heating, fuel cell, small wind energy, geothermal heat pump, biomass fuel, and battery storage technology)

Energy efficient commercial building deduction (section 179D) (12/31/22)

• Now uses an applicable dollar value (ADV) multiplication formula to calculate a potentially higher deduction amount

New qualified plug-in electric drive motor vehicles credit (12/31/22)

• Credit amount - $3,750 for meeting the critical minerals requirement and $3,750 for meeting the battery component requirement. AGI limitations apply.
• Repeals manufacturer limitations so additional vehicles qualify (such as Telsa and GM)

Credit for previously owned “clean” vehicles (12/31/22)

• Possible credit Amount – lesser of $4,000 or the amount equal to 30% of the sale price with respect to such vehicle. AGI limitations apply.

Extension/modification of other existing energy credits:

• Renewable electricity production credit (12/31/21)
• Energy investment tax credit (12/31/21)
• Increase in energy credit for solar and wind facilities placed in service in connection with low-income communities (1/1/2023)
• Carbon oxide sequestration credit (12/31/22)
• Biodiesel, renewable diesel, and alternative fuels credits (12/31/21)
• Energy efficient home credit (12/31/2022)
• Alternative fuel vehicle refueling property credit (12/31/21)

Other new energy credits:

• Zero-emission nuclear power production credit (12/31/23)
• Sustainable aviation fuel credit (12/31/22)
• Clean hydrogen production credit
• Qualified commercial clean vehicle credit (12/31/22)
• Advanced manufacturing production credit (12/31/22)
• Clean electricity production credit (12/31/24)
• Clean electricity investment credit (12/31/24)
• Clean fuel production credit (12/31/24)

The Inflation Reduction Act of 2022 has created many new tax provisions that could affect your organization. Please contact us or reach out to your tax advisor if you have any questions.