On August 18, the president signed into law the Inflation Reduction Act of 2022, which includes new tax provisions, extensions and extensions of tax breaks related to energy efficiency and healthcare.
Here’s what the Inflation Act says and what it can do for you and your taxes.
Energy-efficient tax benefits
A portion of the tax bill goes to consumer energy discount programs and includes the Clean Vehicle Credit, the Alternative Fuel Vehicle Credit, and energy credits for your home.
Clean Vehicle Credit
Before the Inflation Reduction Act, people could claim up to $7,500 credit toward the purchase of a new electric vehicle. Under the new law, people can still qualify for a tax credit of up to $7,500 on the purchase of a new electric vehicle under the renamed Clean Vehicle Credit, and for the first time, from January 1, 2023, people who purchase used electric vehicles will be eligible. come for a tax credit to the lower of $4,000 or 30% of the sale price, depending on their income. Since credits are a reduction in the tax you owe in dollars, you can cut your taxes by up to $7,500 and save money on gas.
Some of the changes related to the Clean Vehicle Credit are:
Manufacturer restriction will be lifted for cars sold after December 31, 2022
Requires final assembly in North America(Effective immediately on August 17, 2022, unless you have entered into a binding contract to purchase a new electric vehicle before August 16, 2022)
Manufacturer must be a qualified manufacturer
Manufacturer’s recommended retail price for vans, SUVs, and pickups is limited to $80,000 and other cars are limited to $50,000
For new cars, the modified adjusted gross income must not exceed $300,000 married filing jointly, $225,000 head of household, $150,000 single
For used cars, modified adjusted gross income must not exceed $150,000 married filing jointly, $112,500 householder, $75,000 single
Most of the changes are in effect with electric vehicles purchased from January 1, 2023. The only change in the law, effective immediately from August 17, 2022, is that new electric vehicles in North America must be finalized. People who signed a binding contract to buy a new electric vehicle before the inflation reduction law was passed can follow the previous rules.
For business owners, the Inflation Reduction Act also adds a tax credit of up to $7,500 for new commercial clean vehicles put into service after December 31, 2022.
Credit for electric chargers installed in your home or business
Before 1 January 2022, a tax credit was available for electric charging stations installed by companies and main residences before 1 January 2022. The new law extends the deduction for charging stations that were put into use before January 1, 2033.
Energy credits available for your home
Before the Inflation Reduction Act, people were given a credit of up to 10% of the amount paid for non-business energy properties such as windows, doors and skylights and the amount of residential energy property put into use before January 1, 2022. You may now use the credit with an increased amount of up to 30% if you start using the house before 1 January 2033.
The provision also removes the previously applicable lifetime credit limit and limits the credit per taxpayer per year.
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Credits for solar energy
If you bought an energy-efficient home before the Inflation Act, such as solar panels and solar water heaters for your home, the tax credit amounted to 26% of your purchase. Under the new law, the credit will be increased to 30% if you purchase the energy-efficient equipment from January 1, 2022 to December 31, 2032.
Health care tax breaks
The tax law extends health benefits when health insurance is purchased in the Health Insurance Marketplace, further extending benefits expanded for 2021 and 2022 under the American Rescue Plan. Health insurance subsidies can help reduce the health insurance premiums you pay and can also show up as a premium discount when you file your taxes if you don’t receive enough subsidy based on your income when you purchase health insurance from 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 U.S. bailout plan, individuals with incomes above 400% of the federal poverty level were eligible for the premium tax credit for tax year 2021 and only. 2022. Based on the Inflation Reduction Act, these benefits will continue to exist.
The law also limits Medicare beneficiaries’ out-of-pocket expenditures on prescription drugs to $2,000 per year and allows Medicare to negotiate some of the more expensive drugs on the market.
Corporate tax changes
Companies making $1 billion or more will see a minimum tax of 15% and a tax of 1% of fair market value on the repurchased shares.
Please visit the TurboTax Blog for more information about the Inflation Reduction Act and the most up-to-date information on the details of what’s included in the bill and what it means for you.
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