On August 18th the President signed the Inflation Reduction Act of 2022 into law, which includes new tax provisions, extensions, and expansions of tax benefits related to energy efficiency and healthcare.
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Here’s what’s included in the Inflation Reduction Act and what it can mean for you and your taxes.
Energy Efficient Tax Benefits
A portion of the tax bill will go to consumer home energy rebate programs and include the Clean Vehicle Credit, the Alternative Fuel Vehicle Credit, and energy credits for your home.
Clean Vehicle Credit
Before the Inflation Reduction Act people were able to claim a credit of up to $7,500 for the purchase of a new electric vehicle. Under the new law people still may be eligible for a tax credit of up to $7,500 for purchasing a new electric vehicle under the renamed Clean Vehicle Credit, and for the first time, starting January 1, 2023 people purchasing used electric vehicles may be eligible for a tax credit up to the lesser of $4,000 or 30% of the sales price, depending on their income. Since credits are a dollar-for-dollar reduction of taxes you owe, you can lower your taxes by up to $7,500 and save money on gas.
Some of the changes related to the Clean Vehicle Credit include:
- The manufacturer limitation is eliminated for cars sold after December 31, 2022
- Requires final assembly in North America(Effective immediately on August 17, 2022, unless you have entered into a binding contract to purchase a new electric vehicle before August 16, 2022)
- Manufacturer must be a qualified manufacturer
- Manufacturer’s suggested retail price for vans, sport utility vehicles, and pickups is limited to $80,000 and other cars are limited to $50,000
- For new cars, modified adjusted gross income cannot exceed $300,000 married filing jointly, $225,000 Head of Household, $150,000 single
- For used cars, modified adjusted gross income cannot exceed $150,000 married filing jointly, $112,500 head of household, $75,000 single
Most of the changes are effective with electric vehicles purchased starting January 1, 2023. The only change in the law that is effective immediately starting on August 17, 2022, is that new electric vehicles must receive final assembly in North America. People who entered a binding contract to purchase a new electric vehicle before the Inflation Reduction Act passed can follow the previous rules in place.
For business owners, the Inflation Reduction Act also adds a tax credit of up to $7,500 for new commercial clean vehicles placed in service after December 31, 2022.
Credit for Electric Chargers Installed at Your Home or Business
Prior to the Inflation Reduction Act, a tax credit was available for electric charging stations put in place by businesses and main homes prior to January 1, 2022. The new law extends the credit for charging stations put in service before January 1, 2033.
Energy Credits Available for Your Home
Before the Inflation Reduction Act people were allowed a credit of up to 10% of the amount paid for nonbusiness energy property like windows, doors, and skylights and the amount of residential energy property placed in service before January 1, 2022. Now you may take the credit at an increased amount of up to 30% if you place the property in service before January 1, 2033.
The provision also eliminates the lifetime credit limit that was previously in place and limits the credit per taxpayer per year.
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Credits for Solar Energy
Before the Inflation Reduction Act, if you purchased residential energy-efficient property like solar panels and solar water heaters for your home, the tax credit was 26% of your purchase. Under the new law, the credit increased to 30% if you purchase the energy-efficient equipment from January 1, 2022, through December 31, 2032.
Healthcare Tax Benefits
The tax law extends healthcare subsidies if health insurance is purchased in the Health Insurance Marketplace, further extending benefits that were expanded for 2021 and 2022 under the American Rescue Plan. Healthcare subsidies can help lower the health insurance premiums you pay and can also show up as a premium tax credit when you file your taxes if you don’t receive enough subsidy based on your income when you purchase health insurance in the Health Insurance Marketplace. The Premium Tax Credit is generally available to people with households between 100% and 400% of the Federal Poverty Level, but under the American Rescue Plan individuals with income above 400% of the Federal Poverty Level were eligible for the Premium Tax Credit for tax year 2021 and 2022 only. Under the Inflation Reduction Act, these benefits will continue.
The law also caps Medicare beneficiaries' out-of-pocket expenses for prescription drugs at $2,000 per year and will allow Medicare to negotiate some of the more expensive drugs on the market.
Corporate Tax Changes
Corporations making 1 billion dollars or more will see a 15% minimum tax and a tax of 1% of the fair market value on the repurchased stock.
Please check back with the TurboTax Blog to find out more information about the Inflation Reduction Act and the most up-to-date information on the details of what’s included in the bill and what it means to you.
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