On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 which includes multiple items including clean energy and climate investments, affordable healthcare, additional funding for IRS enforcement, and key tax provisions as summarized below.
A summary of the tax provisions are outlined as follows:
15% Minimum Tax on Large Corporations
Effective for tax years beginning after December 31, 2022, a 15 percent minimum tax on “adjusted financial statement income” (AFSI) for covered corporations with over $1 billion in profits for any 3-year period ending prior to the current tax year. The definition of covered corporation is a corporation whose stock is traded in the securities market and goes on to state that it excludes S-Corporations, regulated investment companies, and real estate investment trusts. Corporations part of a larger controlled group would be required to aggregate with other members in the group.
1% Excise tax on Stock Repurchases
Publicly traded U.S Corporations will be assessed an excise tax of 1 percent on the value of stock buybacks. The tax will apply to redemptions determined by the Treasury to be economically similar to a redemption with a few exceptions.
Extension on the limitation on Net Business Losses for Individuals
The Net Business Loss limitation imposed by the Tax Cuts and Jobs Act (IRC sec 461(1)) was set to expire in 2026. The Inflation Reduction act extended this through 2028.
Modification of the Payroll Tax R&D Credits
A small business, defined as a business less than 5 years old and with less than $5 million in gross receipts, has been eligible to apply up to $250,000 of a research and development payroll credit against their social security payroll tax liability. The Inflation reduction act added that, beginning with tax years after December 31, 2022, you will be able to apply an additional credit up to $250,000 against their Medicare tax liability.
Residential Energy Efficient Property (REEP)
Was an existing credit for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property. The inflation reduction act extended this existing credit through 2035 and adds battery storage technology.
New Energy Efficient Home Credit (NEEHC)
Was an existing credit ranging from $1,000 to $2,000 for eligible contractors building new qualified energy efficient homes prior to January 1, 2022. The inflation reduction act extends this through January 1, 2033. The credit will now range from $500 to $5,000.
Incentives for Biodiesel, Renewable Diesel and Alternative Fuels:
Was an existing credit for the sales and use of biodiesel and renewable diesel that was used in your trade or business or sold at retail on or before December 31, 2022. It was extended and modified to include sales and use of biodiesel and renewable diesel fuel, biodiesel fuel mixtures, alternative fuel mixtures on or before December 31, 2024.
Qualified Commercial Clean Vehicle Credit
There is a new credit for qualified commercial vehicles acquired after December 31, 2022. The credit will be the lesser of 1) the incremental cost of the vehicle over a comparable vehicle powered by gas or diesel or 2) 15 percent of the vehicles basis limited to a maximum credit of $7,500 per vehicle with gross vehicle ratings of less than 14,000 pounds or 40,000 pounds for heavy vehicles.
Clean Vehicle Credit
The act retitles the existing NQPEDMV credit as the clean vehicle credit and eliminates the number of vehicles eligible for the credit. The credit is only available on purchases where the MSRP is $55,000 or less ($80,000 Trucks/Vans/SUV’s). No credit is allowed if the lesser of your current year or preceding year Modified Adjusted Gross Income is greater than $150,000 (married filing jointly & separately)/$112,500 (head of household)/$75,000(single).
Previously Owned Clean Vehicles
A qualified buyer who purchases a previously owned electric vehicle ($25,000 or less purchase price) after 2022 is allowed a credit equal to the lesser of $4,000 or 30 percent of the vehicle’s sales price. No credit is allowed if the lesser of your current year or preceding year Modified Adjusted Gross Income is greater than $150,000 (MFJ & SS)/$112,500 (HOH)/$75,000 (S).
We invite the opportunity to answer any questions you may have regarding this or other tax legislation. Please contact us today to discuss the impacts this may have for you.