Inflation Reduction Act – Individual and Small Business Credits

The Inflation Reduction Act has been in the news a lot lately, but what does it actually mean for you individually and as a small business owner?

Here is a breakdown of what you need to know. 

Nonbusiness Energy Property Credits

You can get an annual credit of 30% of the total of:

  1. The amount paid you for qualified energy efficiency improvements installed during that year.
  2. Plus the amount of the residential energy property expenditures paid by you during that year.
  3. Up to an additional $150 for the amount spent on a home energy audit.

What’s new here is that it is an annual limitation, allowing a credit of up to $1200 per taxpayer per year. 

There are additional annual limits to be aware of such as:

  • $600 for credits for residential energy property expenditure, windows and skylights
  • $250 for any exterior door ($500 total for all exterior doors).
  • $2,000 annual limit for amounts paid for specific heat pumps, heat pump water heaters, and biomass stoves and boilers.

Residential Clean Energy Credit

Prior to the Act, you were allowed a personal tax credit for solar electric, solar hot water, fuel cell, small wind energy, geothermal heat pump, and biomass fuel property  installed in homes in years before 2024. 

The Act makes the credit available for property installed in years before 2035, and the credit is available for qualified battery storage technology expenditures.

Energy Efficient Home Credit

This credit is available for qualified new energy efficient homes acquired before 1/1/33. The amount of the credit can be $500, $1,000, $2,500, or $5,000 depending on which energy efficiency requirements the home satisfies and whether the construction of the home meets prevailing wage requirements.

Clean Vehicle Credit

The Clean Vehicle Credit eliminates the limitation on the number of vehicles eligible for the credit, and final assembly must take place in North America.

No credit is allowed if the lesser of your modified adjusted gross income for the year of purchase (or the preceding year) exceeds $300,000 for a joint return or surviving spouse, $225,000 for head of household, or $150,000 for others. In addition, no credit is allowed if the manufacturer’s suggested retail price for the vehicle exceeds $55,000 ($80,000 for pickups, vans, or SUVs). 

So, how much is this Clean Vehicle Credit? The way the credit is calculated is changing, but it can be up to $7,500. The rules are complicated, and they place an emphasis on where the battery components (and critical minerals used in the battery) are sourced.

Credit for Used (Previously Owned) Clean Vehicles

You may be eligible for an income tax credit of the lesser of $4,000 or 30% of the vehicle’s sale price for purchasing a used clean vehicle. No credit is allowed if the lesser of your modified adjusted gross income for the year of purchase or the preceding year exceeds $150,000 for a joint return or surviving spouse, $112,500 for a head of household, or $75,000 for others. In addition, the maximum price per vehicle is $25,000.

Credit for Qualified Commercial Clean Vehicles

The maximum credit per vehicle is $7,500 for vehicles with gross vehicle weight ratings of less than 14,000 pounds, or $40,000 for heavier vehicles. Here’s how the credit works:

It is the lesser of 1.) 15% of the vehicle’s basis (30% for vehicles not powered by a gasoline or diesel engine, or 2.) the incremental cost of the vehicle over the cost of a comparable vehicle powered solely by a gasoline or diesel engine.

Qualified Small Business Payroll Tax Credit for Increasing Research Activities

Qualified small businesses may apply an additional $250,000 in qualifying research expenses as a payroll tax crest against the employer share of Medicare. The credit can’t exceed the tax imposed for any calendar quarter, with unused amounts of the credit carried forward.

Incentives for Biodiesel, Renewable Diesel, and Alternative Fuels

You can claim a credit for sales and use of biodiesel and renewable diesel fuel, biodiesel fuel mixtures, alternative fuel, and alternative fuel mixtures on or before 12/31/24.

You can also claim a refund of excise tax for use of…

  1. Biodiesel fuel mixtures for a purpose other than for which they were sold or for resale of such mixtures on or before 12/31/24.
  2. Alternative fuel as that used in a motor vehicle or motorboat or as aviation fuel, for a purpose other than for which they were sold or for resale of such alternative fuel mixtures on or before 12/31/24.

Questions about whether you qualify or how to take advantage of any of these credits? We’re here to help you with the best tax strategy for you and your business. Call us at (614) 456-7222.

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