What is the Inflation Reduction Act?

The Inflation reduction act, aka H.R.5376 of 2022, rewards businesses and other innovative projects that better their community by enriching the economy or society to lower healthcare and energy costs. This is achieved through stimulating the economy by rewarding businesses for implementing certain practices, which not only puts more money in the business owner’s pocket but also encourages customers to seek out these businesses. Further stimulating the economy and getting better benefits from businesses that are staying up-to-date with not only requirements but also choosing to go beyond the normal standard.

Important Sections of the Inflation Reduction Act

The Energy Efficient Home Improvement Credit

The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit. Starting in 2023, the credit will equal 30 percent of the costs of all eligible home improvements made during the year. Additionally:

• A new $1,200 limit will replace the $500 lifetime limit on the total credit amount.
• The annual limits for specific types of qualifying improvements will be…
  $150 for home energy audits. $250 for any exterior door ($500 total for all exterior doors) that meets applicable Energy Star requirements;
• $600 for exterior windows and skylights that meet Energy Star’s most efficient certification requirements;
• $600 for other qualified energy property, including central air conditioners; electric panels and specific related equipment; natural gas, propane, or oil water heaters; oil furnaces; water boilers;
• $2,000 for heat pump and heat pump water heaters, biomass stoves, and boilers. The $1,200 annual limit on total credits and the $600 limit on qualified energy property do not limit this category of improvements.
• One stat to remember is that roofing will no longer qualify.
• For eligible home improvements using products placed in service after 2024, no credit will be allowed unless the manufacturer of any purchased item creates a product identification number.
• Note: For 2022, the old credit rules apply.

Residential Clean Energy Credit

The Residential Clean Energy Credit was scheduled to expire at the end of 2023 but has been extended through 2034. The Inflation Reduction Act also increased the credit amount with a phaseout of the applicable percentage.

Amount of Credit:

• 30 percent for 2023-2032;
• 26 percent for 2033; and
• 22 percent for 2034.

The credit no longer applies to biomass furnaces and water heaters, now covered under the Energy Efficient Home Improvement Credit. Starting in 2023, however, the new credit will apply to battery storage technology with a capacity of at least three-kilowatt hours.

Clean Vehicle Credits

The Inflation Reduction Act extends the Clean Vehicle Credit until the end of 2032 and creates new credits for previously-owned and qualified commercial clean vehicles.
Tax credits include up to:

• $7,500 for the purchase of new qualified commercial clean vehicles;
• $40,000 for vehicles over 14,000 pounds; and
• The lesser of 30 percent of the price of used electric cars or $4,000.

Starting in 2024, the Inflation Reduction Act establishes a mechanism that will allow car buyers to transfer the credit to dealers at the point of sale so that it can directly reduce the purchase price. Restrictions will also be in place for the new vehicle credit based on adjusted gross income (AGI) thresholds. Limitations apply based on the manufacturer’s suggested retail price of the vehicle. For single or married filing separate taxpayers, the limit is $150,000, while taxpayers filing as head of household have a limit of $225,000. For married filing jointly or surviving spouse taxpayers, the limit is $300,000. Reduced AGI limitations apply to the used vehicle credit. Going forward, we would love for you or your business to reach out, as helping businesses with their unique challenges and goals is part of what drives us here at Interactive Accountants.

The Next Step

Here at Interactive Accountants, assisting businesses to grow and succeed financially is our number one goal. We are here to help because the better you do, the better we all do! If you still need convincing to call us, feel free to look at our other blogs regarding the help we offer various businesses and offices. Beyond the information we have presented in this article, we also focus on accounting for law firms, accounting for medical professionals, accounting for ecommerce, accounting for restaurants, and accounting for Amazon DSPs. If you are a professional in any field that these tips apply to or are simply curious about a topic in this article, please schedule a free consultation with our owner Matthew Shiebler, CPA. He’s been practicing accounting for over 25 years and is a business owner, just like you!