Yesterday, President Biden signed the Inflation Reduction Act of 2022. The bill was proposed by Senators Schumer and Manchin as a replacement for the House’s Build Back Better Act and has now passed both chambers with a few adjustments from its original form. Listed below are the key tax provisions found in the bill.
- Corporate Minimum Tax: The bill imposes a 15% minimum tax on adjusted financial statement income for large corporations. Generally, the corporations impacted by this provision are those with an average annual net income of at least $1 billion.
- Excise Tax on Stock Repurchases: The bill imposes a 1% excise tax on the repurchase of stock by domestic publicly traded corporations. The tax would be levied on the fair market value of the stock repurchased.
- Excess Business Loss Limitation: The bill extends the excess business loss limitation by two years, until the tax year 2028. The excess business loss limitation was originally put in place under the 2017 tax reform and was later adjusted as part of COVID-19 relief legislation. The passing of this bill results in the excess business loss limitation being applicable to tax years beginning before January 1, 2029.
- IRS Funding: The bill will fund the IRS with an additional $80 billion over a ten-year window. The additional funding will be used on tax enforcement, including hiring additional auditors, compliance, and system modernization.
- Energy Credits: The bill modifies several energy credits as follows:
- Nonbusiness Energy Property Credit: The current 10% credit rate will be increased to 30% for qualified energy efficiency improvements and residential energy property expenditures.
- Residential Efficient Property Credit: The credit will be extended through the tax year 2034 and qualified battery storage technology will be added to the list of eligible expenditures.
- New Qualified Plug-In Electric Drive Motor Vehicle Credit: The limitation on the number of credits allowed by manufacturers will be removed. The maximum credit amount for new vehicles will be up to $7,500 depending on the mineral and battery components used. Generally, the maximum credit will require that a certain percentage of the battery components be sourced from North America, and the minerals be extracted from the United States or recycled in North America. The final assembly of the vehicle must also occur in North America. There will be income limits put in place for taxpayers who are eligible for the credit as well as a limit on the retail price of the vehicles eligible for the credit. There is a transferability component of the credit that can allow the taxpayer to transfer the credit to the vehicle dealer in certain circumstances.
- Credit for Previously Owned Clean Vehicles: The bill will give a tax credit for used electric vehicles. The credit amount may be as high as $4,000 depending on the vehicle sales price. The credit will generally apply to vehicles acquired after 2022. There will be income thresholds for taxpayers to be eligible for the credit and certain requirements that the vehicle must meet.
The previous version of the bill included modifications of the carried interest rules which have been removed in this final version.
If you have questions about the new law and how it may affect you or your business, please contact your Saville advisor for guidance.