Inflation Reduction Act Tax Provisions
On August 16, 2022, President Biden signed the $750 billion Inflation Reduction Act bill into law covering health care, climate and tax changes. The key tax provisions outlined will take effect on January 1, 2023.
Below is a summary of the key points in the bill.
Limitation on Pass-Through Business Losses Extended
The new law extends the limitation on pass-through business losses enacted in the 2017 Tax Cuts and Job Act (TCJA), for two years through 2028. The original limitation was set to expire in 2026.
Health Insurance Premium Tax Credits Expanded
It also extends the expanded health insurance premium tax credits provided in the American Rescue Plan Act (ARPA) through the end of 2025, including allowing higher-income households to qualify for the credits and boosting the subsidy for lower-income households.
Corporate Book Income Alternative Minimum Tax (AMT) Imposed
A 15% alternative minimum tax will be imposed for corporate book income on corporations with average adjusted financial statement income (AFSI) over a three-year tax period in excess of $1 billion. The provision will take effect for tax years beginning after December 31, 2022.
Excise Tax on Stock Repurchases Established
The bill imposes a 1% excise tax on the value of certain net stock repurchases by publicly traded corporations during the taxable year and net of new issuances of stock. A “repurchase” is defined as a redemption of the stock of the corporation and any other economically similar transaction as determined by the Treasury. The provision will apply to repurchases of stock after December 21, 2022.
Clean Energy Incentives Enhanced and Extended
The bill provides an estimated $370 billion of new energy related tax credits over the next 10 years that expands the current clean energy tax incentives. The “residential clean energy credit” extends and enhances the existing tax break. Two tax credits reward “green” upgrades to homeowners who install solar panels, new energy efficient windows, doors, skylights, water heaters and other items. Costs incurred in 2022 will follow the old rules, 10% with lifetime limit of $500. Costs incurred from the beginning of 2023 to the end of 2032 would qualify for a 30% tax credit. That credit would then fall to 26% in 2033 and 22% in 2034.
Electric Vehicle Tax Credit Requirement Added and Credit Extended
The bill includes a new electric vehicle tax credit requirement that mandates the final assembly of a vehicle must occur within North America to qualify for the tax credit. This new requirement will go into effect immediately. The bill also extends an existing tax credit worth up to $7,500 in tax credits for new “clean” electric vehicles (e.g., electric cars, plug-in hybrids and hydrogen fuel cell vehicles) and $4,000 for used electric vehicles. The tax credit is contingent on certain income requirements, vehicle price and vehicle/sale qualifications. To be eligible for the credit, the modified adjusted gross income cannot be above $150,000 for single tax filers, $300,000 for married filing jointly, and $225,000 for single filing as head of household. This credit will be available through 2032.
Research and Development (R&D) Payroll Tax Credit for Qualified Small Businesses Increased
The law increases the amount of the R&D tax credit that can be applied against payroll taxes for qualified small businesses from $250,000 to $500,000 for tax years beginning after December 31, 2022.
Funding for IRS Tax Enforcement Increased
The IRS tax enforcement will see an $80 billion increase in funding, which is projected to increase federal tax receipts by $204 billion over 10 years.
If you have any questions on how the new tax provisions will affect you, please contact your BSSF tax advisor.