by David J. Hawks | David J. Hawks, CPA, EA
On August 16, President Biden signed the 2022 Inflation Reduction Act (IRA), a $750 billion healthcare, tax, and climate bill. Here are some tax highlights that you should be aware of.
Health Premium Tax Credit – The Obamacare subsidy that allows eligible participants to take a credit against monthly insurance premiums has been extended through 2025. Beware, if your income is too high, you will have to pay back the credit when you file your tax return.
Energy Credits – The credit for purchasing solar panels to place on your primary residence or vacation home has been extended through 2034. This credit applies to alternative energy systems that rely on a renewable energy source so wind, geothermal, or fuel cell technology is included in addition to solar. The credit is also expanded to cover battery storage technology that is installed in your residence. Additionally, the credit is 30% of the cost of the equipment and installation for 2022 through 2032 but will decrease to 26% in 2033, 22% in 2034, and expires in 2035.
The credit for adding energy-efficient improvements to your primary residence is back. This energy credit applies to 10% of the cost of certain types of insulation, external windows, doors, and skylights. It also includes 100% of the cost of electric heat pumps, water heaters, and some A/C units. The lifetime credit limitation is $500 through 2022 but increases to a $1,200 annual limit for improvements installed between 2023 and 2032. The annual limit is lowered to $600 in the aggregate for exterior windows and skylights and $500 for exterior doors along with other applicable items. The annual limit increases to $2,000 for a biomass stove, hot water boiler, and electric or natural gas heat pump installed in the home.
There are also revamped tax credits for electric vehicles. In 2022, the credit ranges from $2,500 to $7,500. Changes beginning in 2023 include limits on the manufacturer’s suggested retail price, fuel cell vehicles qualifying for the credit, the 200,000 plug-in-sales threshold limitation by manufacturers being removed, and buyers of certain used electric vehicles can get a credit up to the lesser of $4,000 or 30% of the car’s sales price. Beginning in 2024, the buyer can monetize the credit by transferring it to the dealer at the time of purchase, thereby lowering the purchase price of the vehicle.
Business Losses – Under present law, the amount of trade or business losses over $540,000 for married couples filing jointly and $270,000 for other filers is nondeductible with excess losses being carried forward. The law was set to expire after 2025 but will now expire after 2028.
There are several other tax law changes that mostly affect large businesses and will not be mentioned here. Please consult your tax adviser if you have questions regarding any of these or other tax laws that were changed because of the Inflation Reduction Act.
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