The Inflation Reduction Act (a scaled-down version of the Build Back Better Act that was introduced in the House in September of 2021), a $430 billion climate, health care, and tax package, was signed by the President this afternoon (August 16, 2022). The bill also allows the Health Secretary to negotiate prices for prescription drugs for Medicare and extends the Affordable Care Act health care benefits for three years through 2025. Key tax provisions are:
- Extends the excess business loss limitations for non-corporate taxpayers for two years through 2028.
- Increases the research credit that can be used against payroll taxes for qualified small businesses from $250,000 to $500,000 for tax years beginning after 2022. (REMINDER – the 2017 Tax Cuts and Jobs Act requires that beginning in 2022, research and development costs must be capitalized and amortized over 5 years. Although changes to the capitalization rule have been proposed, none of those proposals have been enacted at this time, thus capitalization is currently required.)
- Extends the nonbusiness energy property credit (which expired at the end of 2021) through 2032, modifies the credit for expenditures after 2021 to be 30%, and replaces the $500 lifetime credit with a $1,200 annual maximum credit, with certain limitations, such as $600 for exterior windows and skylights, $250 for exterior doors (annual maximum of $500 for all exterior doors) and $2,000 for heat pumps, heat pump water heaters, and biomass stoves and boilers.
- Extends the $7,500 clean vehicle credit through 2032 with major modifications including eliminating the number of manufacturer-specific vehicles rule and replacing it with a sourcing requirement for the critical components and battery systems (primarily US-produced vehicles would qualify), imposing income and MSRP limits on the new vehicle credit, and adding a new credit of up to $4,000 for purchasing a previously-owned clean vehicle (only 1 credit allowed per previously-owned vehicle), subject to income limits.
- Creates a credit for up to 30% of the basis of a qualified commercial clean vehicles acquired after 2022 and through 2032.
- Extends and increases the alternative fuel refueling property credit through 2032.
- Modifies requirements for energy efficient commercial buildings under Internal Revenue Code Section 179D for years beginning after 2022.
- Extends tax credits for energy production and investment in technologies including wind, solar and geothermal energies through 2024. Adds new credits for battery storage and biogas.
- Creates or extends tax credits for additional technologies and energy sources including nuclear energy, clean hydrogen energy, biofuels, and technology that captures carbon from fossil fuel power plants generally through 2032.
- Allows entities to claim a direct payment in lieu of tax credit for certain energy projects after 2022.
- Extends larger premium subsidies related to the Affordable Care Act for three years through 2025 and allows taxpayers with income above 400% of the federal poverty line to qualify for the premium tax credit.
- FOR LARGE C CORPORATIONS WITH $1 BILLION IN ANNUAL EARNINGS – Adds a 15% minimum tax on book income beginning in 2023. Accelerated depreciation is exempt. Expected to impact only 150 large companies.
- FOR PUBLICLY TRADED U.S. CORPORATIONS – Adds a 1% nondeductible excise tax on stock buybacks beginning 2023.
- FOR THE INTERNAL REVENUE SERVICE – Allocates $80 billion to the IRS for enforcement, operations support, business systems modernization, and taxpayer services.
Reach out to our team at MWB on any questions you may have on this new legislation, or any other issues.