On August 16, 2022, President Biden signed into law the Inflation Reduction Act (IRA), which represents the largest investment the country has ever made to fight climate change. Also included in the $430 billion spending-and-tax package are provisions intended to reduce consumers’ healthcare costs, lower the federal deficit and bolster the IRS’s taxpayer support services and compliance efforts. Following is a brief overview of some of these provisions impacting consumers.
Extends and Introduces New Tax Credits for Clean Energy Use
The new law incentives consumers to reduce their carbon footprint and adopt clean-energy solutions via the extension and introduction of a series of tax credits and rebates. It is important for taxpayers to recognize, however, that the availability of some of these credits is subject to limitations, based on such factors as the taxpayers’ modified adjusted gross income. Some of these credits include:
- Extending until 2032 a $7,500 tax credit for the purchase of a new electric or hybrid car manufactured, in part, in the U.S. and priced below $55,000 (or $80,000 for SUVs, trucks and vans). The credit is not available to individual taxpayers with modified adjusted gross income (MAGI) above $150,000 (or $300,000 for married couples filing joint tax returns.
- Introducing a $4,000 tax credit for the purchase of a used electric, hybrid and hydrogen cell vehicle that is at least two model years old. The credit is not available to individual taxpayers with income above $75,000 (or $150,000 for married couples filing joint tax returns.
- Extending and increasing the tax credit for qualifying homeowners who install new energy-efficient windows, doors, air conditioning systems, circulating fans, water heaters and furnaces. In 2023, the value of the credit is equal to 30 percent of the costs of those improvements, up to a maximum of $1,200 each year.
- Extending and increasing the tax credit for qualifying homeowners who install products using wind, solar, fuel cell and geothermal power. The value of the credit is equal to 30 percent of a homeowner’s installation expenses in 2022 through 2032. After that point, the amount of the credit will be reduced.
Lowers Health Care Costs
The new law gives Medicare the power to negotiate the costs of prescription drugs directly with pharmaceutical companies. For example, beginning in 2023, seniors with Medicare Part D coverage will pay no more than $35 per month for insulin. Moreover, the annual out-of-pocket costs for these seniors will be capped at $2,000 beginning in 2025.
For Americans who buy health insurance coverage on federal and state exchanges established by the Affordable Care Act, the bill extends for three years expiring healthcare subsidies that have kept out-of-pocket plan premiums at a minimum.
The professionals with Provenance Wealth Advisors keep a watchful eye on legislation and evolving IRS guidance to ensure our clients maximize opportunities for building wealth while maintaining tax efficiency and compliance.
About the Author: Scott Montgomery is a director with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email info@provweath.com.
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Scott Montgomery is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/deal and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters.
You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
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Posted on September 1, 2022