Explaining the 2022 Inflation Reduction Act (IRA)
We understand that the tax code is already complex and its difficulty compounds with each passage of tax law. This is why we take the time to read the literature and summarize for our clients!
The bill will impact taxpayers earning annually $400,000 or more. A corporate alternative minimum tax of 15% of financial statement income will be imposed on U.S. corporations. The tax will only be imposed on corporations with more than $1 billion in annual earnings over the previous three years and will go into effect for tax years beginning after December 31, 2022. S Corporations, private equity firms and hedge funds are exempt from the minimum tax.
Another focus of the IRA is domestic energy production and climate change reduction. Tax credits are available to both businesses and individuals. The plug-in vehicle credit no longer limits the number of eligible vehicles that qualify for the credit. To qualify, there are certain requirements for the vehicle’s battery components, as well as price and income limitations.
No credit will be allowed for vans, SUVs or pickup trucks with a manufacturer’s suggested retail price over $80,000. The limit is $55,000 for other vehicles. A taxpayer’s modified adjusted gross income (MAGI) for the current or preceding tax year must be below $150,000 for single filers, $300,000 for married couples filing jointly and $225,000 for heads of household to claim the full tax credit.
Under the IRA, tax credits can be claimed, for the lesser of $4,000 or 30% of the vehicle’s sales price, on a used plug-in electric drive vehicle purchased after 2022.
Tax breaks will also be eligible for individuals who make certain energy efficiency improvements to their home, such as installing solar panels, water heaters, heat pumps and HVAC systems.
Individuals who have health insurance coverage through the federal Health Insurance Marketplace may experience reduced health care costs. Refundable premium tax credits will now extend through 2025.
Please contact us with any questions you may have!