The President signed the Inflation Reduction Act of 2022 into law, which includes new tax provisions, extensions, and expansions of tax benefits related to energy efficiency and healthcare.
Here’s what’s included in the Inflation Reduction Act and what it can mean for you and your taxes.
Energy Efficient Tax Benefits
Clean Vehicle Credit
Credit for Electric Chargers Installed at Your Home or Business
Energy Credits Available for Your Home
Credits for Solar Energy
Healthcare Tax Benefits
Corporate Tax Changes
Energy Efficient Tax Benefits
A portion of the tax bill will go to consumer home energy rebate programs and include the Clean Vehicle Credit, the Alternative Fuel Vehicle Credit, and energy credits for your home.
Clean Vehicle Credit
Before the Inflation Reduction Act people were able to claim a credit of up to $7,500 for the purchase of a new electric vehicle. Under the new law people still may be eligible for a tax credit up to $7,500 for purchasing a new electric vehicle under the renamed Clean Vehicle Credit, and for the first time, starting January 1, 2023 people purchasing used electric vehicles may be eligible for a tax credit up to the lesser of $4,000 or 30% of the sales price , depending on their income. Since credits are a dollar for dollar reduction of taxes you owe, you can lower your taxes by up to $7,500 and save money on gas.
Credit for Electric Chargers Installed at Your Home or Business
Prior to the Inflation Reduction Act a tax credit was available for electric charging stations put in place by businesses and main homes prior to January 1, 2022. The new law extends the credit for charging stations put in service before January 1, 2033.
Energy Credits Available for Your Home
Before the Inflation Reduction Act people were allowed a credit up to 10% of the amount paid for nonbusiness energy property like windows, doors, and skylights and the amount of residential energy property placed in service before January 1, 2022. Now you may take the credit at an increased amount up to 30% if you place the property in service before January 1, 2033.
The provision also eliminates the lifetime credit limit that was previously in place and limits the credit per taxpayer per year.
Credits for Solar Energy
Before the Inflation Reduction Act, if you purchased residential energy efficient property like solar panels and solar water heaters for your home, the tax credit was 26% of your purchase. Under the new law the credit increased to 30% if you purchase the energy efficient equipment January 1, 2022 through December 31, 2032.
Healthcare Tax Benefits
The tax law extends healthcare subsidies if health insurance is purchased in the Health Insurance Marketplace, further extending benefits that were expanded for 2021 and 2022 under the American Rescue Plan. Healthcare subsidies can help lower the health insurance premiums you pay and can also show up as a premium tax credit when you file your taxes if you don’t receive enough subsidy based on your income when you purchase health insurance in the Health Insurance Marketplace. The Premium Tax Credit is generally available to people with households between 100% and 400% of the Federal Poverty Level, but under the American Rescue Plan individuals with income above 400% of the Federal Poverty Level were eligible for the Premium Tax Credit for tax year 2021 and 2022 only. Under the Inflation Reduction Act these benefits will continue.
The law also caps Medicare beneficiaries out-of-pocket expenses for prescription drugs at $2,000 per year and will allow Medicare to negotiate some of the more expensive drugs on the market.
Corporate Tax Changes
Corporations making 1 billion dollars or more will see 15% minimum tax and a tax of 1% of the fair market value on repurchased stock.
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