The Inflation Reduction Act is gaining attention as the new legislation promises to deal with various issues the American economy is currently facing. President Joe Biden signed it into law on August 16, 2022, and it has been the topic of discussion at Capitol Hill for quite some time now.
As an American citizen, you might wonder what it means for you. The most important aspect of the Inflation Reduction Act is to deal with the climate change issue. It focuses on taking relevant actions to mitigate the impact of climate change and slow down the trajectory of global warming.
Most notably, green energy credits are an important part of the Inflation Reduction Act since they can help you get your home and vehicle tax credits. Another important element of the Inflation Reduction Act that affects the taxpayers is related to healthcare.
The major element of the Inflation Reduction Act is related to health care. It will impact people with Medicare who take certain medications. Moreover, it will also affect those who count on premium assistance for Affordable Care Act coverage.
The legislation will also affect various large organizations significantly. They’ll have to pay a 15% minimum corporate tax and a 1% excise tax on stock buybacks.
Apart from the provisions for the healthcare sector and corporations, there are other major provisions that you need to know about. These provisions in the Inflation Reduction Act can influence future decisions for buying your car and other things.
Suppose you already purchase or are planning on buying energy-efficient doors and windows and appliances such as ACs, water heaters, etc. In that case, you might be aware of the Non-business Energy Property Tax Credit. It reduces the tax paid on an item you use to make your home more energy efficient.
While the tax credit expired in 2021, it has been extended through the 2022 tax year. While the tax credit aimed to help you want to replace major household items, there were numerous restrictions on this credit that made it difficult for people to access it.
According to the Inflation Reduction Act, the new Energy Efficient Home Improvement Credit in this legislation will replace the old credit. From the start of the tax year 2023, the credit will:
Cover your costs for home energy audits, some boilers, biomass stoves, and equipment related to electric panels.
Moreover, it will also increase the limits for certain types of eligible improvements. For instance, an individual can now claim up to $2,000 as a tax credit for some improvements such as:
Furthermore, it will also give you a tax credit for almost $600 if you spend on energy-efficient things such as water heaters, exterior windows, etc. For energy credits, the lifetime limit will not be more than $500.
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Instead, you can claim around $1,200 yearly, but you must provide purchase documentation after 2024. You can use the product identification number for each purchase you want to include on your tax returns.
Another important element of the Inflation Reduction Act is the Clean Vehicle Credit. The US government has been giving certain tax breaks to customers who purchase electric vehicles since 2009. Internal Revenue Code (IRC) Section 30D which is still in force to this day allows you to get tax credits of up to $7,500 if you purchase
This tax credit is non-refundable, preventing you from claiming more than what you have in taxes for the year you purchase the electric vehicle and put it into use. For instance, if you own $6,000 in tax credit, that is the maximum you can claim.
There wasn’t any change in this tax credit until the Inflation Reduction Act came along. While Congress did try to increase the limit for this credit to $12,000 in the Build Back Better Bill, it failed to go through Senate.
The credit limit stays at $7,500, but the name has changed to Clean Vehicle Credit. Moreover, it would now be challenging for you to claim the credit due to the new provisions in the Inflation Reduction Act.
There are two restrictions for each half of the tax credit. The first restriction is on the first $3,750 for where the material for the batteries is mined, and the second restriction is on the second $3,750 for where the batteries are made. Although the US isn’t an industry leader on either count, Congress is working on it.
Besides the above provisions of the IRA, there are some also elements of the legislation that might affect you, such as:
There is still some news pending about the Inflation Reduction Act, but we will continue to update you about the impact of this massive new legislation.
If you are wondering how the provisions in the Inflation Reduction Act can impact your finances and taxes, we are here to help you with it. We can also look at your financial situation and help you make the most out of the credits available in the Inflation Reduction Act.
You can better understand the provisions on protecting the environment, home energy tax credits, electric vehicle tax credits, and much more. Contact us today, and we will be more than happy to assist you.
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