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On August 16, President Biden signed the Emissions Reduction Act into law. At $750 billion, it is one of the largest spending bills in US history. Most of the money will be used to fight climate change, reduce prescription and health care costs, and pass tax reform. But when? And how does any of this affect taxpayers?
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Here’s a look at some of the key changes the Inflation Reduction Act is implementing over the next five years — and what they might mean for your finances — broken down by CPAs and other financial experts.
Health Insurance Fees
“In the interest of people who purchase their health insurance at a premium under the Affordable Care Act, the Affordable Care Act increases the income tax credits available to people who are enrolled in a qualified health plan,” said Bruce A. Tannahill, director of country and business planning with MassMutual.
This change will take effect in 2023.
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Sports Fees
“With the current rate of inflation, retirees are struggling to balance rising costs while staying on fixed income,” said Brian Mawhinney, CFP, head for financial planning with MassMutual. “To help seniors forego essential services like health care, the Affordable Care Act attempts to address rising health care costs by curbing rising prescription drug costs.
“Medicare’s work can directly negotiate with pharmaceutical companies. For example, almost a quarter of Medicare beneficiaries are dependent on life-saving insulin. As a result of the IRA, these costs are now closed to $35 per month. Those with Medicare also receive greater income protection and $2,000 in annual prescription drug costs, saving many seniors up to $1,000 every year.
The first part of this change — the insulin cap negotiations — will take effect in 2023. The Medicare cap of $2,000 on prescriptions will go into effect in 2025.
Credit for Energy Home Improvements
“The Nonbusiness Energy Property Credit was renamed the Energy-Efficient Home Improvement Credit and extends to 2032,” said Levon L. Galstyan, CPA at Oak View Law Group. “The credit will be equal to 30% of the expenses for all allowable home improvements made during the year, beginning in 2023.”
Also:
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The $1,200 annual limit replaces the $500 cap on the total loan amount.
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Annual limits for rated improvements: $150 for home electrical inspection, $250 for an exterior door ($500 total for all Energy Star compliant exterior doors), $600 for exterior windows and skylights that meet Energy Star’s best rating requirements , and $600 for other qualified energy resources (main air conditioners, electric panels, related equipment, natural gas, propane, or oil). The cap of $600 on qualified property and $1,200 per year on all income does not apply to this type of improvement, and the cap is no longer appropriate.
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No credit is issued for eligible home improvements and products that enter service after 2024 unless the purchaser of each item purchased produces a product identification number for the item and the taxpayer who applies for it in the amount that is included in the amount on that year’s tax return.
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Note that for 2022, previous credit policies are in effect.
Credit for Clean Residential Energy
“The Residential Green Energy Credit … was set to expire at the end of 2023 but has now been extended to 2034,” Galstyan said. “The Affordable Care Act also increased the debt, and a corresponding percentage was eliminated.”
The number is 30% for 2023-2032, 26% for 2033 and 22% for 2034, Galstyan said.
“Bio furnaces and water heaters are not eligible for credit,” he said. “They are now covered under the Energy Efficiency Home Improvement Fund. But starting in 2023, the new number will be available for battery storage systems with a minimum of 3-kilowatt-hours.
Credit for White Vehicles
“The Emissions Reduction Act will add new credits for qualifying clean industries and traditional clean vehicles, and will extend the Clean Time Credit through 2032,” Galstyan said.
The tax credits are as follows:
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$40,000 for vehicles over 14,000 pounds, $7,500 for new vehicles that qualify for clean cars, and the lesser of $4,000 or 30% of the cost of used electric vehicles. Based on the manufacturer’s suggested retail price, restrictions apply.
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In addition, new vehicle liability thresholds must be met based on gross income (AGI). For taxpayers who are single or married filing separately, the limit is $150,000; for heads of households, the limit is $225,000; for those filing jointly or with common-law partners, the limit is $300,000.
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A used car loan has a lower AGI limit. Galstyan said, “The Final Discount Act creates a mechanism that allows car dealers to transfer credits to consumers at the point of sale in order to lower the purchase price, starting in 2024. “
The IRS and Taxes
The Inflation Reduction Act includes a 1% sales tax on corporate stock sales, a 15% lower tax rate on businesses with revenues of $1 billion or more, and an additional $79 billion over 10 years for the IRS, which said Galstyan.
“The IRS is putting together a strategy that shows how it wants to use the extra money,” he said. “These resources are not intended to increase scrutiny of small businesses and low-income Americans. They are intended to better serve all taxpayers, especially small businesses and middle-income taxpayers. classroom, additional resources are allocated to hiring staff and developing IT systems.
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This article originally appeared on GOBankingRates.com: 6 IRS Changes Coming in the Next Five Years
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