The Inflation Reduction Act, which includes expanded or extended tax credits and additional funding for the IRS, became law on August 16, 2022.
How might the law to reduce inflation affect you when you file your next tax return?:
Below is a simplified summary of how the inflation reduction law may affect you.
Health care:
The inflation reduction law includes:
- Extend Affordable Care Act (ACA) funding through 2025. These funds, which were due to expire at the end of 2022, will allow consumers to continue purchasing insurance at lower premiums through the Health Insurance Marketplace (also known as the Marketplace or the exchange.)
- Extension of the temporary exception to the American Rescue Plan Act (ARPA) that allows taxpayers with incomes above 400 percent of the federal poverty level to qualify for the premium tax credit.
Energy Efficient Home Improvement Credit:
The Non-Commercial Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit.
Starting in 2023, the credit will be equal to 30 percent of the costs of all eligible home improvements made during the year. It's more:
- The $500 lifetime limit on the full amount of the credit will be replaced with an annual limit of $1,200.
- The annual limits for specific types of qualified improvements will be:
$150 for home energy audits;
$250 for any exterior door ($500 total for all exterior doors) that meets applicable Energy Star requirements;
$600 for exterior windows and skylights that meet Energy Star's most efficient certification requirements;
$600 for other qualifying energy properties, including central air conditioners; electrical panels and some related equipment; natural gas, propane or oil water heaters; oil ovens; water boilers;
$2,000 for heat pump and heat pump water heaters; Biomass stoves and boilers. This improvement category is not limited by the $1,200 annual limit on total credits or the $600 limit on qualified energy property; Y
The coverage will no longer be eligible.
For eligible home improvements using products placed in service after 2024, no credit will be allowed unless the manufacturer of any item purchased creates a product identification number for the product and the taxpayer requesting the credit includes the number in your return for that tax year.
Note: For 2022, the above credit rules apply.
Residential Clean Energy Credit:
The Residential Energy Efficient Property Credit, now called the Residential Clean Energy Credit, was supposed to expire at the end of 2023, but has been extended to 2034. The law to reduce inflation also increased the amount of the credit, with the percentage phased out. . applicable.
Credit amount:
- 30 percent for 2023-2032;
- 26 percent by 2033; Y
- 22 percent by 2034.
The credit no longer applies to biomass stoves and hot water heaters, now covered by the Energy Efficient Home Improvement Credit. However, starting in 2023, the new credit will apply to battery storage technology with a capacity of at least three kilowatt hours.
Clean Vehicle Loans:
The Reducing Inflation Act extends the clean vehicle credit through the end of 2032 and creates new credits for previously owned clean vehicles and qualified clean commercial vehicles.
Tax credits include up to:
- $7,500 to purchase new qualified clean commercial vehicles;
- $40,000 for vehicles over £14,000; Y
- less than 30 percent of the price of used electric vehicles or $4,000.
Restrictions apply based on vehicle manufacturer's suggested retail price. There are also limitations to the new vehicle credit based on adjusted gross income (AGI) thresholds: for single or married taxpayers filing separately, the limit is $150,000; for taxpayers claiming to be head of household, the limit is $225,000; and for joint filing of marriage or for surviving spouse taxpayers, the limit is $300,000. Reduced AGI restrictions apply to used vehicle credit.
Starting in 2024, the Inflation Reduction Law establishes a mechanism that will allow car buyers to transfer credit to dealers at the point of sale so that they can directly reduce the purchase price.
Taxes and IRS Financing:
The Inflation Reduction Law also includes:
- 15 percent minimum corporate tax with more than $1 billion in income;
- 1% special tax on the purchase of own shares; Y
- About $79 billion in additional funding over ten years for the IRS.
The IRS is preparing a plan that shows how it plans to use the additional funds. In a recent letter to all members of the Senate, IRS Commissioner Charles Rettig said, "These resources are in no way to increase audit scrutiny over small businesses or middle-income Americans... More will be spent resources in employees and IT systems that will allow us to better serve all taxpayers, including small businesses and middle-income taxpayers."
More information:
The Inflation Reduction Act makes these and many other changes to the Internal Revenue Code. While these changes may not affect your individual tax bill, extended tax credits could save you money at tax time.
For more information on the Inflation Reduction Act, see the IRS newsroom.
The Taxpayer Advocate Service will post information as it becomes available on our News and Information page for applicable tax matters related to the Information Reduction Act.