President Joe Biden signed the Inflation Reduction Act into law on August 16, 2022. Highlighted below are some of the more significant changes included in the Bill.
Corporate Alternative Minimum Tax
The Corporate Alternative Minimum Tax (AMT) which was eliminated by the Tax Cuts and Jobs Act, has been resurrected by the Inflation Reduction Act of 2022. Here are some key details regarding the proposed AMT:
- The AMT is 15 percent of the corporation’s adjusted financial statement income for the tax year, reduced by the corporate AMT foreign tax credit.
- The tax would only apply to corporations with an average annual adjusted financial statement income of more than one billion dollars for the three prior tax years. This threshold is reduced to $100 million in the case of certain foreign-parented corporations.
- The AMT is effective for tax years beginning after 2022.
- Companies that are owned by private equity firms and certain manufacturing companies are exempted from the AMT Tax.
Stock Repurchases
The Bill includes a one percent excise tax on corporate stock repurchases by domestic corporations whose stock trades on an established securities market. The tax also applies to the purchase of the stock of a specified affiliate corporation, which is a corporation that is more than 50 percent owned (by vote or value) by the purchasing corporation or a partnership in which the purchasing corporation holds more than 50 percent of the capital or profits interest.
The excise tax would go into effect beginning in 2023.
Passthrough Loss Limitation
The Bill extends the excess business loss limitations that apply to losses from partnerships and S Corporations through 2028. This provision limits the amount of trade or business deductions that can offset nonbusiness income. The limitation for the 2018 tax year was $250,000 (or $500,000 in the case of a joint return), with these threshold amounts indexed for inflation in subsequent years and was supposed to sunset before January 1, 2026. However, the Coronavirus Aid, Relief, and Economic Security (CARES) Act retroactively delayed the implementation of this act from tax years beginning after Dec. 31, 2017, to tax years beginning after Dec. 31, 2020.
Research Credit for Small Business
Certain qualified small businesses are allowed to claim a limited amount of the research credit against payroll taxes.
Under the proposed Act, in tax years beginning after 2022, the amount of limitation is increased from $250,000 to $500,000.
IRS Funding
The Act increases funding for the Internal Revenue Service (IRS) of $80 billion across 10 years, with more than half of that going to improve enforcement activities.
Only $3 billion will be earmarked for improving taxpayer services.
Green Energy
Residential energy credit which expired at the end of 2021, is modified, and extended through 2032 by the Act. The credit is for energy efficient windows, doors, and HVAC, with an annual limit of $1,200.
The energy efficient commercial building deduction is modified and expanded for tax years beginning after 2022 to encourage and support investments in building energy efficient buildings.
Included in the provisions are tax credits related to the purchase of electric vehicles. The bill provides a tax credit of up to $7,500 for the purchase of new electric vehicle and a new tax credit of up to $4,000 for a previously owned electric vehicle.
The bill includes new tax credits as well as extensions on expiring credits to produce electricity from renewable sources; making homes more energy efficient; and other activities aimed at reducing the carbon output of the nation.
Proposals Not Included in the Bill
The Build Back Better Act included other proposals that are not included in this act. The original Act included a provision to close the so-called “carried interest loophole” that was originally estimated to generate $14 billion in revenue. This provision is not included in the final form.
Also, the Inflation Reduction Act of 2022 does not include a restoration of the individual deduction for state and local taxes (The SALT deduction).
The Act does not include extension of COVID era expansion of the child tax credit and earned income tax credit.
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