Inflation Reduction Act
The recently passed “Inflation Reduction Act” was signed into law on August 16, 2022 and
contains provisions directed at clean vehicle benefits (new and used), solar tax credits, energy home
improvements, IRS funding, corporate alternative minimum tax of 15% and health insurance premium
assistance credits. Here is a brief synopsis of the key provisions:
1. Clean vehicle benefits (new and used)
The purchase of clean vehicles, which includes both plug-in electric vehicles and fuel cell
vehicles, is extended through 2032. The Act eliminates the current credit limitations on the
number of vehicles produced by a specific manufacturer. However, this new credit requires
final assembly of the vehicle in North America. The maximum amount of the credit remains
at $7,500 but comes with taxpayer income limitations and further restrictions on the
manufacturer’s retail price. This tax credit is not available to a single taxpayer with adjusted
gross income that exceeds $150,000 ($300,000 in the case of joint filers) in the current or
preceding taxable year.
Beginning in 2023, a tax credit of up to $4,000 will be available for the purchase of a
previously-owned clean vehicle. Similar to the above, there are income limitations to be
eligible to claim the credit. This tax credit is not available to a single taxpayer with adjusted
gross income that exceeds $75,000 ($150,000 in the case of joint filers) in the current or
preceding taxable year. The Act also provides a new credit up to 30% of the cost of qualified
commercial clean vehicles acquired after 2022 and before 2033. The IRS has referenced a
link from the Department of Energy to list the electric vehicles that may meet the final
assembly requirement effective August 16, 2022: https://afdc.energy.gov/laws/inflation-
reduction-act
2. Solar tax credits and Energy Efficient Home Improvement Credit
Starting January 1, 2022 through December 31, 2032, a 30% tax credit will be available on
purchased (not leased) qualified solar equipment home improvements made during the
year to a primary or secondary home. This credit is scheduled to decrease to 26% in 2033
and 22% in 2034, expiring in 2035. This would also expand to cover the cost of certain
biomass stoves, boilers, electric panels, related equipment and home energy audits. Roofing
and air circulating fans will no longer qualify for the credit.
Related to other energy efficient home improvements, such as certified windows, doors,
insulation, a 30% credit is also available up an annual limit of $1,200. Prior to the Act, a
lifetime limit of $500 applied, which the Act has removed.
3. IRS Funding
The stated purpose of this provision is to improve IRS service and to close the “tax gap”
which is the difference between what legislators believe should be collected by the IRS and
what is actually collected. The hope is that more IRS resources will be available to enforce
the nation’s tax laws and this investment in IRS resources will lead to an increased collection
of revenue.
4. Corporate Alternative Minimum Tax of 15%
The Act resurrects the corporate alternative minimum tax. This would be effective for tax
years ending after 12/31/2022. The Act will include a 1% tax on stock repurchases by
domestic corporations whose stock trades on an established securities market. The Act also
includes an extension of the excess business loss limitation as it applies to partnerships and
S corporations through 2028.
5. Health Insurance Premium Assistance Credits
As originally enacted by the American Rescue Plan, every household (including households
with income in excess of 400% of the poverty level), would be able to cap their insurance
premium costs at 8.5% of their income for 2021 and 2022. This only applies when the family
does not have “affordable” employer-provided insurance and are forced to buy their
insurance through Covered California or another State’s health exchange. The Act has
extended this provision to December 31, 2025.
At this point there is not a significant amount of detailed guidance / clarification about the
specific terms of this Act, as such we will do our best to continue to keep you updated as things become
clearer. In the meantime, if you have any questions about how these provisions may affect you,
please reach out to your DKC representative.
