On Friday the House of Representatives passed H.R. 5376 commonly referred to as the Inflation Reduction Act (IRA). The Act’s key drivers are to control runaway inflation by way of reducing prescription drug prices for the average American, reducing energy costs and reducing the national deficit. Bundled in this bill are a number of tax law changes designed to increase taxes:
- The IRA will create a 15% alternative minimum tax on corporations with average annual adjusted financial statement income in excess of $1 billion for the three prior tax years (applies to tax years beginning after December 31, 2022).
- Adding a 1 percent excise tax on corporate stock buybacks (applies to repurchases of stock after December 31, 2022)
- Reinstatement of Superfund taxes on crude oil and petroleum products (effective January 1, 2023)
- A two-year extension of the section 461(l) loss limitation rules for noncorporate taxpayers (extends the current law limitation to tax years beginning before January 1, 2029)
The IRA also includes a variety of tax incentives for business and individuals:
- Under current law, an eligible small business can apply $250,000 of Research and Development credits against payroll taxes. The legislation would increase the amount of R&D credits that can be applied against the payroll tax liability to $500,000
- A new $4,000 tax credit for purchasing a used electric vehicle, which is at least two years old and sold prior to December 31, 2032 is included in the IRA, or a $7,500 tax credit is available for purchasing a new EV placed in service after December 31, 2022 (subject to income limitations).
- The residential energy property credit extends credit to residential homeowners who install appliances that make energy efficiency improvements to their homes after December 31, 2022. The credit is subject to an annual limitation of $1,200. The Act also includes a tax credit of up to $150 annually for home energy audits.
- EV chargers placed in service prior to December 31, 2032 are eligible for a 6 percent alternative fuel refueling property credit, capped at $100,000 and 20 percent credit on amounts in excess of $100,000.