On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. This bill has passed both the House and Senate along party lines. A summary of observations and insights are listed below.
The corporate AMT returns for C-corporations at 15% of “adjusted financial statement income” for the return, reduced by an AMT foreign tax credit. This only applies to corporations with average annual adjusted financial statement income in excess of $1 billion in the three prior years. Where the corporation has a foreign parent, the limit drops to $100 million. Effective after 2022.
A new 1% excise tax on stock buybacks. This applies to securities that are publicly traded. The tax is 1% of the net of (1) the FMV of the buyback, less (2) new shares issued. Many public companies are issuing new shares regularly to satisfy option exercises and to provide stock-based compensation. If the total share repurchases do not exceed $1 million, it is considered de minimis. Effective after 12/31/2022.
IRA extends the enhanced health insurance premium tax credit that was in place for 2021 and 2022 under the American Rescue Plan Act through 2025.
There are enhanced energy credits.
- The current $500 max lifetime home energy credit is replaced with a 30% credit with an annual $1200 limit. Effective after 2022 and before 2032.
- Electric vehicle (EV) credits if placed in service after 2022 and before 2033.
- $7,500 for new EVs.
- To qualify for the EV credits –
- The final assembly of the vehicle must be in North America,
- At least 40% of the critical minerals in the battery must be extracted or processed in the US or a US free trade country, and
- At least 50% of the battery components must be manufactured or assembled in North America. DMJPS Observations: Many have noted that few vehicles currently will pass these tests based on the source of the critical minerals. No credit if the MSRP is over $80,000 for SUVs, pickups, and vans, and $55,000 for other vehicles.
- No credit if the lesser or current AGI exceeds $300,000 MFJ, $225,000 HOH, or $150,000 other filers.
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- $4,000 for used EVs-
- Must be more than 2 years old and costing $25,000 or less
- No credit if the lesser or current AGI exceeds $150,000 MFJ, $112,500 HOH, or $75,000 other filers. Only the first sale after enactment will qualify, to prevent churning the same vehicle.
- DMJPS Observations: Note the implications of these interesting AGI rules. So someone with normally $1 million of AGI has an offset year due to K-1 losses or other reasons, they can buy an EV in that year. In reality, many of these taxpayers do not know whether they will qualify until the year is over. But this law allows that rule to apply to the next year also.
- $4,000 for used EVs-
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- Removes the current 200,000 vehicle rule after 12/31/2022. DMJPS Observations: Note the implications of these interesting AGI rules. If there’s a taxpayer who normally has $1 million of AGI and has an off year due to K-1 losses or other reasons, they could buy an EV in that year. In reality, many of these taxpayers do not know whether they will qualify until the year is over. This law allows the EV rule to apply to the next year also.
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- Certain qualified commercial EVs placed in service after 2022 will also be eligible for a credit.
- Extends and expands a host of miscellaneous energy credits.
Also included is an increase in IRS funding.
R. Milton Howell III, CPA, CSEP
Milton is experienced in taxation issues including, tax research for both open and closed transactions, structuring complex tax transactions, estate and income tax planning, and representing clients before tax authorities. As DMJPS' former Director of Tax Services, Milton regularly writes and reviews articles in local, regional, and national publications on tax matters and spends significant time monitoring current tax issues and legislation.
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