The Inflation Reduction Act of 2022 (IRA), signed into law by President Biden on August 16, 2022, provides a variety of new tax provisions that are set to become effective this year.
Several green energy tax provisions are included in the IRA. Here’s what you need to know.
Green cars.
One provision which took effect as soon as the law was signed changed the eligibility rules to claim a tax credit for clean vehicles. As of August 16th, only electric vehicles with parts assembled in North America qualify for the $7,500 clean vehicle credit. That means all brands built abroad immediately lose credit eligibility. Check your vehicle’s VIN to determine whether it was assembled in North America or abroad.
Initially, the clean car credit was only available on the first 200,000 units sold. But as of January 1, 2023, the cap will be lifted, and those models will qualify if bought after 2022.
Also, the IRA places caps on the prices of vehicles that qualify for the credit, as well as the income limits on the taxpayer claiming the credit. Effective after 2022, passenger cars are capped at $55,000 with vans, SUVs, and trucks limited to $80,000. And the buyer’s adjusted gross income (AGI) must be below $150,000 for single filers and $300,000 for married filing jointly to claim the credit.
Finally, the IRA allows partial credits for buying used electric vehicles. Previously, the credit was only available for new car purchases. But there are income limits here, too – $75,000 for single filers and $150,000 for married filing jointly.
Green homes.
Homeowners can also receive enhanced tax breaks to help make their homes more energy efficient. Starting in 2023, up to 30% of the costs associated with installing Energy Star-rated doors and windows and upgrading insulation qualify for a tax credit, with a total annual cap of $1,200. Previously, there was a $500 lifetime credit per taxpayer.
Upgrading your air conditioner and appliances and completing energy audits can qualify you for the credit too. However, there are caps on how much you can spend on different types of improvements.
The end of a popular tax deduction.
While the Inflation Reduction Act of 2022 is full of new and enhanced provisions that will help taxpayers save money in 2023 and beyond, one popular tax law is scheduled to be phased out.
The temporary 100% deduction for business meals eaten at restaurants will revert to 50% on January 1, 2023. This tax provision has been in effect since 2020 and was extended through 2021, but it is set to expire in the new year. Business owners should pay close attention to these changes and adjust their budgets accordingly.
Staying informed on tax laws is critical for the success of your business. And the Boris Benic and Associates team can help you ensure you take advantage of every eligible deduction and remain compliant with the latest regulations. Let us put our expertise to work for you.