The Inflation Reduction Act (P.L. 117-169) of 2022 is a landmark United States federal law enacted by the 117th US Congress effective August 16, 2022. It aims to:
- Curb inflation by reducing the deficit to fight inflation
- Lower prescription drug prices and extend the expanded Affordable Care Act program to 2025
- Invest in domestic energy production and manufacturing while promoting clean energy
Most of the outlays in the Act are devoted to incentives for green energy with a large share being in the form of tax credits for green energy. In some cases, the credits are extensions and expansions of current credits like:
- Residential energy property
- Energy-efficient homes & commercial buildings
- Alternative fuel refueling property
- Renewable electricity
- Energy Investment
- Carbon dioxide sequestration
- Incentives for alternative energy
- The extension (up to 2032), modification, and expansion of the clean vehicle credit (includes both plug-in electric & fuel cell vehicles) subject to certain requirements
New credits such as those for:
- Energy produced from zero-emission nuclear power facility
- Sustainable aviation fuel
- Production of clean hydrogen
Increase in the amount of research credit for certain qualified small businesses are allowed to claim against payroll taxes from $250K to $500K.
The Act is paid for through the:
- Implementation of a 15% corporate alternative minimum tax effective after 2022 on the corporation’s adjusted financial statement income for the tax year, reduced by a corporate AMT foreign tax credit for only corporations with an average annual adjusted financial statement income of more than $1 billion for the three prior tax years. This threshold is reduced to $100 million in the case of certain foreign-parented corporations.
- Budget increases for the IRS to improve enforcement with the intention of closing the tax gap. The Treasury Secretary issued a directive for the implementation of new programs in such a way as not to increase examinations of taxpayers making less than $400K.
- 1% excise tax on stock repurchases after 2022, defined as redemptions, or transactions determined to be economically similar to redemptions, by domestic corporations whose stock trades on an established securities market.
- Extension of the excess business loss limitations as it applies to Noncorporate Taxpayers from Jan 1, 2027, to Jan 1, 2029.
- Changes to Medicare rules
If you have any questions regarding the green energy tax credits and if you qualify, please reach out to us for a consultation.