Unpacking the Inflation Reduction Act - What Changes Are Coming, and When | Barnes Dennig

Unpacking the Inflation Reduction Act – What Changes Are Coming, and When

Published on by Andy Bertke in Consulting, Tax Services

Unpacking the Inflation Reduction Act – What Changes Are Coming, and When

The recently signed Inflation Reduction Act contains extensive changes, including some new tax credits, changes or increases for others, and significant tax law changes. In what may be one of the biggest charts we’ve ever built (at least for a blog post), here’s a summary of what’s changing, and when.

Since it is so big, we’ve set it up so you can search for specific keywords and find the elements of the Inflation Reduction Act that are most relevant to you.

ItemIRC Sec.Prior LawNew LawProperty placed in service after 2022.
Energy Efficient Home Improvement Credit

Formerly Nonbusiness Energy Property Credit
25CA $500 lifetime credit was allowed for personal energy property (such as energy-efficient doors and windows) for the taxpayer’s principal residence. The credit equaled 10% of the cost of qualified energy-efficient improvements plus 100% of the cost of residential energy property expenditures. This credit has been extended for property placed in service through 12/31/22.A $1,200 annual credit is allowed for qualified energy-efficient improvements installed during the year and residential energy property expenditures paid or incurred. Credit equals 30% of the cost of the improvements and expenditures made during the year. An additional credit amount of $150 is available for a home energy audit.
Credit amounts are limited to:
• Any qualified energy property–
$600
• Windows and skylights–$600
• Exterior doors–$250 and $500 in aggregate
• Heat Pump and heat pump water heaters, biomass stoves and boilers–$2,000

Identification numbers will be required with respect to specified property items placed in service after 2024.
Property placed in service after 2022.
Residential Clean Energy Credit

Formerly Residential Energy Efficient Property
25DIndividuals were allowed a Residential Energy Efficient Property (REEP) credit of 26% of their qualified expenditures for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property installed in homes.The credit is increased to 30% for qualified expenditures. The rate is reduced in stages after 2032.

Qualified battery storage technology is considered a qualified expenditure after 2022.
Expenditures made after 2021
and before 2035.
Credit for Previously-owned Clean Vehicles25EN/AQualified buyers who acquire and place in service a previously owned clean vehicle are allowed a credit equal to the lesser of $4,000 or 30% of the vehicle’s sale price. No credit is available if the buyer’s modified AGI for the year of purchase or, if lower, the preceding year exceeds
$150,000 for MFJ ($112,500 for HOH, and $75,000 for all others).
Vehicles acquired after 2022 and
before 2033.
Alternative Fuel Vehicle Refueling Property Credit30CA credit equal to 30% of the cost of any qualified alternative fuel vehicle refueling property placed in service by a trade or business or at a taxpayer's principal residence was available for property placed in service before 2022. The credit was limited to $30,000 for all business property annually and $1,000 for personal property. This credit has been extended for property placed in service during 2022.A credit equal to 6% (increasing to 30% if certain conditions are met) of the cost of any qualified alternative fuel vehicle refueling property is available. The credit is limited to
$100,000 per single item. Eligible property includes bidirectional charging equipment and electric charging stations for
two- and three-wheeled vehicles for public road use.
Charging or refueling property is only eligible if placed in service in a low-income or rural census tract.
Property placed in service after 12/31/22 and before 2033.
Clean Vehicle Credit
Formerly New Qualified Plug-in Electric Drive Motor Vehicles
30DTaxpayers could claim a credit of up to $7,500 for each New Qualified Plug-in Electric Drive Motor Vehicle (NQPEDMV) placed in service. The credit phased out when a manufacturer sells its 200,000th plug-in electric drive motor vehicle for use in the U.S.Final assembly of qualifying electric vehicles must be in North America.
The clean vehicle credit is capped at
$3,750 for meeting the critical minerals requirement and $3,750 for meeting the battery component requirement (among other requirements).

The manufacturer phase-out is eliminated.

No credit is available for taxpayers whose modified AGI for year of purchase or, if lower, the preceding year exceeds $300,000 for MFJ ($225,000 for HOH and $150,000 for all others).

No credit is allowed for cars with a manufacturer’s suggested retail price over $55,000 ($80,000 for vans, sport utility vehicles and pickups).
Final assembly requirement applies after 8/16/22.

All other criteria apply after 2022
and before 2033.
Premium Tax Credit36BThe refundable Premium Tax Credit (PTC) was available on a sliding scale basis for individuals and families enrolled in an Exchange- purchased qualified health plan and who were not eligible for other qualifying coverage. The PTC was partially based on the taxpayer’s household income multiplied by an applicable percentage, which was then indexed based on the rates of premium growth relate to income growth. The American Rescue Plan Act of 2021 (ARPA) suspended indexing for 2021 and 2022 and substituted a statutory table with favorable rates that resulted in a higher PTC. Indexing was to have resumed in 2023.The favorable ARPA rates are extended for three additional tax years and indexing is suspended for that period. Taxpayers with household income over 400% of the Federal Poverty Line (FPL) remain eligible for the PTC.Tax years beginning in 2021
through 2025.
Second Generation Biofuel Producer Credit40Taxpayers could generally claim a credit equal to $1.01 for each gallon of qualified second-generation biofuel production. The biofuel credit expired for biofuel production after 2021.The biofuel credit is extended.Production after 2021 and before
2025.
Biodiesel and Renewable Diesel Used as Fuel40ATaxpayers could claim a credit for sales and use of biodiesel and renewable diesel that they used in their trade or business or sold at retail. The credit expired for fuel sold or used after 2022. They could also claim a credit for sale or use of a biodiesel mixture as fuel or for sales or use before 2023. In addition, they could claim a credit for the sale or use of alternative fuel in a motor vehicle or motor boat, or as aviation fuel for sales or use before 2022.
The ultimate purchaser of a biodiesel fuel mixture or alternative fuel who used the fuel for a purpose other than which it was sold or who resells it, could claim a refund of excise tax for any such use before 2023 (2022 for alternative fuel).
The credit for sales and use of biodiesel and renewable diesel fuel, biodiesel fuel mixtures, alternative fuel, and alternative fuel mixtures is extended for sales and use before 2025.For fuel sold or used after 2021
and before 2025.

The period for which taxpayers can claim a refund of the excise tax is also extended for sales and use before 2025.
Sustainable Aviation Fuel Credit40BN/AA sustainable aviation fuel credit is allowed against income tax as a general business credit or against excise tax liability.

The basic credit is $1.25 per gallon of qualified mixture plus where the greenhouse gas emissions reduction percentage for the qualified mixture exceeds 50%, an increase resulting in a credit up to $1.75 per gallon.

A producer or importer of the fuel must be registered with the IRS and must certify it meets certain other compliance requirements.
Fuel sold or used after 2022 and
before 2025.
Credit for Electricity Produced from Certain Renewable Resources45The renewable electricity production credit provided a credit of 1.5 cents per kilowatt hour (the base amount) of electricity produced from qualified energy resources at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service and sold by the taxpayer to an unrelated person during the tax year. Qualified facility status generally required construction to begin before 2022.The credit is reduced to 0.3 cents per kilowatt hour.

Two requirements were added for taxpayers to obtain a 1.5 cent base amount: a prevailing wage requirement and an apprenticeship requirement.

Qualified facility construction deadlines are extended and include facilities using solar energy.
Facilities placed in service after 2021.
New Energy Efficient Home Credit45LThe New Energy Efficient Home Credit (NEEHC) was available to eligible contractors for qualified new energy efficient homes acquired by a homeowner before 2022. The credit was either $1,000 or $2,000, depending on the energy efficiency requirements the home satisfied.
This credit was extended to dwellings acquired after 2021.
The amount of the credit is increased to as much as $5,000, depending on which energy efficiency requirements are satisfied and whether prevailing wage requirements are met.

A dwelling unit qualifies for the credit if it is certified as a zero-energy ready home under the zero-energy ready home program of the Department of Energy and it satisfies a set of requirements based on the type of home constructed.
Dwelling units acquired after 2022 and before
2033.
Credit for Carbon Oxide Sequestration45QA credit of $20 per metric ton was available for Qualified Carbon Oxide (QCO) captured and sequestered at a qualified facility placed in service before 2/9/18 and disposed of by that taxpayer in secure geological storage. Additionally, taxpayers could take a credit of $10 per metric ton of QCO that was captured and by the taxpayer as a tertiary injectant.

If the carbon capture equipment was placed in service after 2/8/18, the applicable dollar amount was determined by a formula.

The construction of a qualified facility had to begin before 2026 and have minimum annual capture requirements to emit less than certain levels of carbon oxide into the atmosphere to qualify.
The credit is extended. The minimum annual capture requirements to qualify a facility for the credit have been reduced. The credit for capture and sequestrations on QCO is $17 per ton. The credit for the capture and use of carbon oxide as a tertiary injectant is $12.

The amount of the credit is increased five times per ton for qualified facilities or any carbon capture equipment that satisfy a new prevailing wage and apprenticeship requirement.
Qualified facilities that begin construction after 2021 and before
2033.
Credit for Carbon Oxide Sequestration
Zero-emission Nuclear Power Production Credit
45UN/AA new credit for kilowatt hours of electricity produced by a qualified nuclear power facility. A qualified nuclear power facility is one that is owned by the taxpayer, is not an advanced nuclear power facility, and was placed in service before 8/16/22. The credit amount is
0.3 cents multiplied by the kilowatt hours of electricity produced by the taxpayer.
Electricity produced and sold after 2023
and before 2033.
Clean Hydrogen Production Credit45VN/AA credit is available for the first 10 years that a qualified clean hydrogen production facility is in service. The amount of the credit
depends on how clean the qualified clean hydrogen production facility is. The credit is $0.60 per kilogram of clean hydrogen produced per year if the facility produces clean hydrogen in a process that results in a lifecycle greenhouse gas emissions rate of less than 0.45 kilograms of CO2 per kilogram of hydrogen.
Hydrogen produced after 2022.
Credit for Qualified Commercial Clean Vehicles45WN/AThis new credit per qualified commercial clean vehicle is the lesser of: (1) 15% of the vehicle’s basis (30% for vehicles not powered by a gasoline or diesel engine) or
(2) the vehicle’s “incremental cost” over the cost of a comparable vehicle powered solely by a gasoline or diesel engine. The maximum credit per vehicle is $7,500 for vehicles with gross vehicle weight ratings of less than 14,000 pounds, or $40,000 for heavier vehicles.

A qualified vehicle must be acquired by the taxpayer for business (not for resale) for use on public streets, roads, and highways, or be “mobile machinery”.
Qualified vehicles acquired and placed in service after 2022 and
before 2033.
Advanced Manufacturing Production Credit45XN/AThe new credit for eligible components that the taxpayer produces, and sells is part of the general business credit. Eligible components include: (1) solar energy components; (2) wind energy components; (3) inverters (products used to convert certain solar and wind energy from direct current to alternating current); (4) qualifying battery components; and (5) applicable critical minerals.

The formulas that determine how much credit is earned for each sale of a unit of an eligible component are not the same for all five types of eligible components and different formulas can apply to different subtypes of eligible components.
Components produced and sold after 2022.
Clean Electricity Production Credit45YN/AThe base amount of this credit equals 0.3 cents per kWh of electricity produced and sold or stored at qualified facilities.
However, an alternative credit amount equal to 1.5 cents is available for a qualified facility that has a maximum output of less than one megawatt and that meets other requirements.
The 0.3 percent amount and the
1.5 cent amount are adjusted annually for inflation.
Facilities placed in service after 2024 until certain emissions targets are achieved, or 2032, whichever is later.
Clean Fuel Production Credit45ZN/AThis new credit applies to low- emissions transportation fuel produced at a qualified facility. Transportation fuel is a fuel suitable for use in a highway vehicle or aircraft that meets certain emissions rate and processing requirements. The credit base amount is $0.20 per gallon ($0.35 per gallon for aviation fuel) multiplied by an applicable emissions factor. If prevailing wage and apprenticeship requirements are met, a higher base amount (alternative amount) of $1.00 per gallon ($1.75 per gallon for aviation fuel) applies.Fuel produced after 2024 and
sold before 2028.
Energy Credit48The following types of property were eligible for the credit: new or reconstructed depreciable property that was (1) Type 1 solar property,
(2) Type 2 solar property,
(3) geothermal deposit energy property, (4) qualified fuel cell property, (5) qualified microturbine property, (6) cogeneration property,
(7) qualified small wind energy property, (8) ground water heating and cooling property, or (9) waste energy recovery property.

The credit amount was (1) 30% of the investment for Type 1 solar property (if construction began before 2024), qualified fuel cell property, Type 2 solar property, qualified small wind energy property, and waste energy recovery property and (2) 10% for any other property. Taxpayers could elect
the IRC Sec. 48 energy credit, at a 30% rate, instead of the IRC Sec. 45 renewable electricity production credit.
Qualifying property was expanded to include energy storage technology, qualified biogas property, and microgrid controllers.
The base credit ranges from 2% to 6%, based on the type of property.

The credit is increased if the taxpayer meets certain requirements (for example, the domestic content bonus and wage/apprenticeship compliance).
Special rules apply after 2021, and all credits end as of 12/31/34.
Qualifying Advanced Energy Project Credit48CA qualifying advanced energy project credit was part of the section 46 investment credit and was equal to 30% of the qualified investment.

A qualified advanced energy manufacturing project was a project that re-equips, expands, or establishes a manufacturing facility for the production of various forms of energy. Only depreciable tangible personal property, but excluding a building or its structural components, was eligible for the credit.
The credit is expanded to include additional energy projects.

The base rate for the credit will be 6%, with the 30% credit rate allowed for projects meeting certain prevailing wage and registered apprenticeship requirements.
1/1/23.
Clean Electricity Investment Credit48EN/AThe credit, which is part of the section 46 investment credit, is an amount equal to the applicable percentage of the qualified investment for that year with respect to any qualified facility and any energy storage technology.

For qualified facilities and energy storage technology, the base rate for is 6%. An alternative rate of 30% is allowed for projects meeting certain requirements.
Facilities placed in service after 2024.
Corporate Alternative Minimum Tax55(b)(2); 56AN/AA new 15% corporate AMT is imposed on the adjusted financial statement income, defined at IRC Sec. 56A (“book income”), of applicable corporations.

The minimum tax applies if it exceeds the taxpayer’s regular tax including its Base Erosion and Anti- abuse Tax (BEAT) for the tax year.

An applicable corporation is any corporation [other than an S corporation, Regulated Investment Company (RIC), or Real Estate Investment Trust (REIT)] that meets the income test.

A corporation meets the income test if its average annual adjusted financial statement income for the three-tax-year period (determined without regard to loss carryovers) ending with the tax year exceeds
$1 billion.

The $1 billion income test is applied by including the income of all corporations that are treated as a single employer and including the income from all partnerships in which the corporation owns an interest.

The IRS will provide rules for the application of the definition of includible foreign corporations.

An applicable corporation retains that status in perpetuity unless the corporation has an ownership change or has a specified number of consecutive tax years, including the most recent tax year, in which the corporation does not meet the income test.
Tax years beginning after 2022.
Certain Green Energy Property Classified as MACRS Five-year Property168(e)(3)(B)For Modified Accelerated Cost Recovery System (MACRS) depreciation recovery periods, certain specified categories of property are classified as being five- year property (e.g., automobiles and qualified technological equipment).Three new categories of green energy property are added to the MACRS five-year property classification. This includes
(1) qualified facility, as defined under IRC Sec. 45Y; (2) qualified property, as defined under IRC Sec. 48E; and
(3) energy storage technology, as defined under IRC Sec. 48(c)(6).
Facilities and property placed in service after 2024.
Accelerated Cost Recovery for Green Building Property179DThe cost of Energy Efficient Commercial Building (EECB) property placed in service for the year could be currently deducted. The maximum annual deduction allowed was calculated by multiplying a statutory dollar amount ($1.80), adjusted for inflation, by the building’s square footage. EECB property must satisfy certain installation requirements.The minimum efficiency standard required for a Section 179D deduction is reduced from a 50% reduction in total annual energy and power costs to a 25% reduction.

An Applicable Dollar Value (ADV) multiplication factor is enacted, which is a variable based on the percentage of total annual energy and power cost reductions for the building. The ADV begins at $0.50, and it can increase to $5.00. An election is provided for a new alternative deduction for energy efficient building retrofit property which is taken in the year of qualifying final certification.
Tax years beginning after 2022.
Limit on Excess Business Losses461(l)For tax years beginning after 2020 and before 2027, noncorporate taxpayers cannot currently deduct an excess business loss, even if they materially participate in the business. Such losses are carried forward and treated as part of the taxpayer’s Net Operating Loss (NOL) carryforward in subsequent tax years.
An excess business loss for the tax year is the excess of the taxpayer’s aggregate deductions attributable to the taxpayer’s trades or businesses [determined before this limit, but after the Passive Activity Loss (PAL) rules], over the sum of the taxpayer’s aggregate gross income or gain plus $500,000 (for MFJ; $250,000 for all other filers), adjusted for inflation.
The limitation on excess business losses of a noncorporate taxpayer is extended.Tax years beginning after 2026 and before
2029.
Coal Excise Tax Rates4121For sales after 2021, the manufacturer’s excise tax on coal applied at the following reduced rates: 50¢ per ton for coal from underground mines and 25¢ per ton for coal from surface mines, not to exceed 2% of the sales price.The reduced rates are eliminated, and the regular coal excise tax rates are permanently extended. Excise tax rates are $1.10 per ton for coal from underground mines and 55¢ per ton for surface mined coal, not to exceed 4.4% of sales price.Sales in calendar quarters beginning after 8/16/22.
Excise Tax on Repurchase of Corporate Stock4501N/AAn excise tax equal to 1% of the fair market value of any stock of the corporation that is repurchased by a covered corporation during the tax year is imposed. A covered corporation is any domestic corporation whose stock is traded on an established securities market.
The 1% excise tax does not apply to the extent that the repurchase is part of a reorganization and no gain or loss is recognized.

Other situations in which the 1% excise tax doesn’t apply include:
(1) any case in which the stock repurchased is contributed to an employer sponsored retirement plan, employee stock ownership plan, or similar plan; (2) any case in which the total value of the stock repurchased during the tax year does not exceed $1 million; (3) in cases in which the repurchase is by a dealer in securities in the ordinary course of business; (4) to repurchases by a Regulated Investment Company (RIC) or a Real Estate Investment Trust (REIT); and to the extent that the repurchase is treated as a dividend.
Repurchases of stock occurring after 2022.
Hazardous Substance Superfund Tax on Crude Oil and Petroleum Products4611Crude oil received at a U.S. refinery and petroleum products that entered the U.S. for consumption, use, or warehousing, were subject to a 9¢-per-barrel environmental excise tax. In addition, a 9.7¢-per- barrel excise tax on the above- described crude oil and petroleum products, which had funded the Hazardous Substance Superfund Trust Fund, was in effect but had expired after 1995.The Hazardous Substance Superfund tax is reinstated to apply to the crude oil and petroleum products described under prior law, at an increased tax rate of 16.4¢-per- barrel in addition to the 9¢-per- barrel environmental tax.
The 16.4¢-per-barrel rate is adjusted for inflation.
1/1/23
Manufacturers Excise Tax on Noncompliant Drug Manufacturers, Producers, and Importers5000DN/AAn excise tax on sales by drug manufacturers, producers, and importers of designated drugs during the “noncompliance period;” i.e., during the time that the manufacturer, etc., fails to enter into drug pricing agreements under
Sec. 1193 of the Social Security Act. A designated drug is any negotiation-eligible drug included on the list which is manufactured or produced in the U.S. or entered into the U.S. for consumption, use, or warehousing.
Sales after 8/16/22;
however, the earliest possible date that a noncompliance period can begin is 10/2/26.
Elective Payments and Transferable Credits for Energy Property and Electricity Produced from Certain Renewable Resources6417
6418
N/AWith respect to certain energy related credits (e.g., the alternative fuel vehicle refueling property credit under IRC Sec. 30C), certain applicable entities can elect to be treated as making a payment against their income tax equal to the amount of the credit.
An eligible taxpayer can also transfer certain eligible credits to other taxpayers. An eligible taxpayer is any taxpayer that is not described in IRC Sec. 6417(d)(1)(A) (i.e., any taxpayer that is not an applicable entity).
Tax years beginning after 2022.

Have a question about the tax law changes and how they may affect your organization? Set up a free consultation with one of our top tax pros. We’re here to help.


Categories

Related Services

More Insights