On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022. The bill provides investment in clean energy, promotes reductions in carbon emissions, and extends the Affordable Care Act insurance premium reductions. What does this bill mean for you and your business? The following outlines the most relevant general provisions of the bill and the impact of each provision on taxpayers:
Corporate Alternative Minimum Tax: For tax years beginning after 2022, the Inflation Reduction Act would implement a Corporate Alternative Minimum Tax equal to 15% of the corporation’s adjusted financial statement income for corporations with average annual adjusted financial statement income in excess of $1 billion for the three prior tax years.
Stock Repurchases: After 2022, a 1% excise tax will be assessed on stock repurchases by publicly traded domestic corporations. The tax also applies to the purchase of stock of a specified affiliate corporation, which is a corporation more than 50% owned by the purchasing corporation. Separate rules also apply to the purchase of stock of a foreign affiliate.
Passthrough Loss Limitations: Extends the excess business loss limitation through 2028. The maximum deductible, indexed for inflation, is $540,000 for married taxpayers in 2022.
Affordable Care Act: Expands the affordability percentages used in calculating the premium tax credit to make credits available for individuals with income above 400% of the federal poverty line under the Affordable Care Act through 2025.
Green Energy: Green energy incentives make up the largest portion of tax provisions. The following are relevant incentives available to taxpayers:
- Electricity Produced from Renewable Resources: The bill extends the credit for electricity produced from certain renewable resources through 2024. Increased credits are available for entities that meet certain workforce and wage requirements in construction or operation of the facility.
- Energy Investment Credit: Also extended through 2024, the energy investment credit is available for solar facilities placed in service in connection with low-income communities and is subject to workforce and wage credit enhancements, similar to the renewable electricity credit.
- Residential Energy Incentives: Re-establishes the credit for nonbusiness energy property through 2032. The credit applies to energy efficient windows, doors, HVAC systems, heat pumps and with an annual credit limit of $1,200.
- Clean Vehicles: The credit for the purchase of clean vehicles (including both plug-in electric and fuel cell vehicles) is extended through 2032. The maximum amount of the credit is $7,500, but includes income limitations, as well as limitations on the manufacturer’s suggested retail price. A new credit of up to $4,000 is also available for the purchase of a previously owned clean vehicle, subject to income limitations, through 2032. An additional credit for up to 30% of the basis of a qualified commercial clean vehicle is available for vehicles purchased after 2022 and before 2033.
- Post-2022 Energy Incentives: Additional credits are available to taxpayers after 2022, including credits for energy produced from zero-emission nuclear power facilities, the sale or use of sustainable aviation fuel, the production of clean hydrogen, energy efficient commercial buildings, and the purchase of biodiesel, renewable diesel, and alternative fuels.
It is important to reach out to a tax professional if you believe you or your business might qualify for credits under the Inflation Reduction Act of 2022. At ADKF, we are with you all the way and would be pleased to assist you in with any further guidance needed.