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.
How Does The Inflation Reduction Act Affect Average Americans?
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.
Major Provisions of the Inflation Reduction Act
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.
Green Energy Tax Credits
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:
- Not be applicable on air-circulating fans or roofing
- Be equal to the 30% expenditure that you would bear for your home improvements
- Be subject to all relevant updates for the energy-efficiency standards
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:
- Heat pump water heaters
- Gas heat pumps
- Biomass stoves and boilers
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.
