The Inflation Reduction Act of 2022

On Wednesday, July 27, members of the Senate released a draft of the Inflation Reduction Act of 2022, and the Senate passed the bill on Sunday, August 7. This bill focuses on tax reform, energy and climate initiatives, and lowering the cost of prescriptions.  The bill adds about $80 billion for the IRS to pursue those who dodge what they owe.

Corporate Tax

This provision in the legislation has brought back the Corporate Alternative Minimum Tax (AMT) and would be in effect for tax years beginning after 2022. The new AMT would be 15% of the corporation’s adjusted financial statement income but would be reduced by a corporate AMT foreign tax credit. The tax would only apply to corporations that exceed $1 billion in average adjusted financial statement income for the three prior tax years.

The bill would also impose a 1% tax on corporate stock buybacks beginning in 2023.

Excess Business Loss Limitation

The Act would add a two-year extension to the excess business loss limitation.

Prescription Drug Reform

The Inflation Reduction Act would allow Medicare to negotiate the price of certain prescription drugs and cap the amount recipients would pay for out-of-pocket drugs each year at $2,000.  The measure would also extend the premium subsidies for health coverage for low- and middle-income taxpayers for three years under the Affordable Care Act.

Energy and Climate Initiatives

The bill includes numerous investments in climate protections, including tax rebates and credits for households to offset energy costs, investments in clean energy productions, and tax credits aimed at reducing carbon emissions, including:

  • Tax credit for green energy for those who use an electric vehicle for residential energy property.
  • Extension of the credit to 2024 for electricity procedures for certain renewable resources.
  • Extension of the energy investment credit until 2024.
  • Extension of residential energy incentives for nonbusiness energy property through 2032. The credit applies to energy-efficient doors, windows, certain HVAC systems, and heat pumps. The credit would have an annual limit of $1,200 and be extended through 2034.

If you have any questions about this Act and its impact on you and your business, feel free to contact your Sax advisor or email [email protected] with any questions.

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