August 12, 2022 – Today, the U.S. House of Representatives voted to approve the Inflation Reduction Act (“Act”) of 2022 that the U.S. Senate passed on August 7. The Act will now be presented to President Biden who is expected to sign it into law before the end of the month. The Act contains several tax related provisions and clean energy incentives including:
Corporate Minimum Tax: The corporate minimum tax applies to corporations with average annual adjusted book income in excess of $1 billion for three consecutive tax years. This threshold is reduced to $100 million for certain subsidiaries owned by foreign corporate parents. The minimum tax is effective for tax years beginning after 2022.
Stock Buyback Excise Tax: A 1% excise tax applies to certain transactions in which publicly traded corporations repurchase their own stock from shareholders. This provision is effective for stock buybacks made after December 31, 2022.
Extension of Excess Business Loss Limitation: The excess business loss limitation for taxpayers other than Subchapter C corporations was set to expire for tax years beginning after 2026. The Act extends the application of the excess business loss provisions for an additional two tax years.
Increased Payroll Tax Credit for Increasing Research Activities: For tax years beginning after December 31, 2022, the payroll tax credit limitation available to a qualifying small business for increasing its qualified research activities is increased from $250,000 to $500,000.
New Clean Vehicle Credit: A credit of up to $7,500 for new “clean vehicles” (electric and fuel cell vehicles) with final assembly in the United States is available through 2032. However, the credit is not available for vehicles with battery inputs sourced from China, Iran, North Korea, or Russia. The credit is phased out for single taxpayers with modified adjusted gross income of $150,000 and $300,000 for taxpayers filing joint returns.
Used Clean Vehicle Credit: A credit of 30% of the sales price of a previously owned clean vehicle (up to a maximum of $4,000) is also available through 2032. The credit is phased out for single taxpayers with modified adjusted gross income of $75,000 and $150,000 for taxpayers filing joint returns.
Commercial Clean Vehicle Credit: A credit of up to 30% of the sales price of a clean vehicle manufactured for commercial use on public streets, roads, or highways is available through 2032.
Residential Energy Efficiency Property Credit: The credit for qualified energy efficient home improvements is modified and extended through 2032. The maximum lifetime credit is increased from $500 to $1,200 for certain expenditures.
Other Clean Energy Incentives: The Act establishes, modifies, and extends over $250 billion in green energy tax credits for production of and investment in clean electricity, renewable energy, solar and wind energy, and nuclear power.
Whitley Penn is continually monitoring tax and economic developments and will send out additional alerts in the future. In the interim, please contact your Whitley Penn tax advisor if you have any questions or require any additional information.