TJT Certified Public Accountants

Congress Passes Significant Tax Legislation

Congress recently passed the Inflation Reduction Act which has wide ranging implications for healthcare and climate change. It also has several provisions with the potential to impact business and individual taxpayers. Below are select highlights from the Act which we believe may affect TJT clients.

The Inflation Reduction Act:

  1. Extends the nonbusiness energy property credit through 2032, increases the credit rate to 30%, replaces the lifetime limit with an annual limit of $1,200, and modifies the standards for qualified energy-efficiency improvements. This generally applies to property placed in service after 2021. It applies to vacation homes and primary residences. For eligible home improvements after 2024, no credit will be allowed unless both criteria are met: The manufacturer of any purchased item creates a product identification number for the item, and the person claiming the credit includes the number on his or her tax return. 

  2. Extends the residential energy efficient property credit (renamed the “residential clean energy credit”) through 2034. Replaces the credit for biomass fuel property expenditures with a new credit for battery storage technology expenditures. Applies to expenditures made after 2022. 

  3. Modifies the formula for computing the maximum amount of the energy efficient commercial buildings deduction, increases the deduction amount if new wage and apprenticeship requirements are met, modifies the energy efficiency standard, eliminates the partial deduction for property that does not meet the certification standard, and provides an alternative deduction for energy efficient building retrofit property. This provision generally applies to taxable years beginning after 2022.   

  4. Extends the new energy-efficient home credit, which is a business credit for contractors who manufacture or construct energy-efficient homes, through 2032. Increases credit amounts, modifies energy-saving requirements, and provides a larger credit amount for residences that meet wage requirements. The increased credit amount generally applies to dwelling units acquired from an eligible contractor after 2022, and is also subject to more stringent requirements. The extension of the current credit applies to dwelling units acquired in 2022, and is not subject to the new requirements. 

  5. Preserves the existing up to $7,500 tax credit for qualified vehicles including electric, plug-in hybrids, and hydrogen fuel cell vehicles. Provides a new nonrefundable personal credit for qualifying previously owned clean vehicles. A taxpayer may also elect to transfer the credit to a registered dealer in exchange for payment from that dealer. The credit is subject to retail price limitations, and taxpayer modified adjusted income limitations. There is also a new requirement that battery components manufactured by certain “foreign countries of concern” would be ineligible to receive the credit. It also adds a requirement that final assembly of the vehicle occur in North America. Generally, it applies to vehicles acquired after 2022. Transfer-of-credit provision applies to vehicles acquired after 2023. Credit terminates after 2032.     

  6. Provides a new business credit for qualified commercial clean vehicles. The credit is equal to the lesser of either 15% or 30% of basis determined by whether the vehicle is (15%) or is not powered by a gas or diesel internal combustion engine (30%). It also increases the credit up to $7,500 to $40,000 for vehicles with a gross vehicle weight rating of at least 14,000 pounds. The credit terminates after 2032, and applies to vehicles acquired after 2022.     

  7. Provides rebates for household appliances, heat pumps, insulation, and electrical wiring for qualified homeowners. These rebates are subject to household income thresholds. 

  8. Extends through 2025, the reduced percentage of household income that is used to calculate the premium contribution for an individual claiming the premium tax credit. Also, through 2025, allows a taxpayer with household income for the year of 400% or more of the federal poverty line to qualify for the premium tax credit. Applies to taxable years beginning after 2022.  

  9. Increases the limit on the amount of research credit that qualified small businesses may elect to treat as a credit against their payroll tax liability from $250,000 to $500,000. Applies to taxable years beginning after 2022.   

  10. Extends limitation of Excess Business Losses until 2028. 

  11. Appropriates about $80 billion to the IRS to add auditors, improve customer service, and modernize technology.  Provides $15 million to the IRS with funding for a report to Congress on the potential creation and maintenance of an IRS-run e-file system. 

Please contact our office if you have any questions about how this legislation may affect your situation.