On August 16, 2022, President Joe Biden officially enacted the Inflation Reduction Act of 2022 (IRA). It includes various new environment-related tax credits and extends and modifies some preexisting credits. Here’s what individuals and small business owners need to know.
EXTENDED, INCREASED, AND/OR MODIFIED CREDITS
- Nonbusiness Energy Property Credit– You may claim personal credit for nonbusiness energy property expenses placed before January 1, 2033. The IRA repeals the lifetime credit limit, limiting it to $1,200 per taxpayer per year.
- Residential Clean-Energy Credit – You may get a tax credit for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property installed in homes before 2035.
- New Energy Efficient Home Credit – Eligible contractors may receive a New Energy Efficient Home Credit (NEEHC) of $500, $1,000, $2,500, or $5,000 for qualified homes purchased before January 1, 2033.
- Clean-Vehicle Credit – The IRA renames the new qualified plug-in electric drive motor vehicle (NQPEDMV) credit as Clean Vehicle Credit and removes the vehicle limit, but no credit is allowed for certain modified adjusted gross income (MAGI) ranges and for vehicles with certain manufacturer’s suggested retail prices.
- Credit for Previously Owned Clean Vehicles – A qualified buyer who acquires and uses a clean pre-owned vehicle after 2022 can claim an income tax credit of $4,000 or 30% of the vehicle’s sale price, but not for certain MAGI ranges. The per-vehicle maximum is $25,000.
- Credit for Qualified Commercial Clean Vehicles– A new qualified commercial clean-vehicle credit is available for qualified vehicles that are bought and put to use after December 31, 2022.
- Qualified Small Business Payroll Tax Credit for Increasing Research Activities– After December 31, 2022, a qualified small business (QSB) may apply up to $250,000 in qualifying research expenses as a payroll tax credit against the employer share of Medicare in addition to the $250,000 payroll tax credit against the employer’s share of Social Security tax.
- Incentives for Biodiesel, Renewable Diesel and Alternative Fuels– You can claim a credit for sales and use of biodiesel, renewable diesel, biodiesel fuel mixtures, alternative fuel, and alternative fuel mixtures on or before Dec. 31, 2024. You can also claim an excise tax refund for biodiesel fuel mixtures used for a purpose other than for which they were sold or for resale on or before December 31, 2024, and alternative fuel used in a motor vehicle, motorboat, or aircraft on or before December 31, 2024.
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