The Inflation Reduction Act of 2022 sets out to tackle some of the economic issues that have threatened the U.S. economy due to the lingering effects of the COVID-19 pandemic.
One of the main problems it seeks to mitigate is climate change and environmental protection. The IRA plans to solve this problem by offering tax credits for using certain “green technologies.”
Many provisions in the IRA incentivize the average American to adopt traditionally pricy green technology. Making electric vehicles (EVs) more affordable is one such provision.
Through the IRA, buyers can apply for a maximum tax credit of $7,500 – but the full $7,500 amount depends on several criteria. These criteria are as follows:
- The new EV relies on a battery with five-kilowatt hours of capacity (minimum).
- The EV owner’s gross income does not exceed $150,000 (single filers), $300,000 (joint filers), or $225,000 (heads of households).
- The new EV must be assembled in North America (this stipulation only pertains to EVs sold after August 16, 2022).
- The new EV must cost less than $55,000 (smaller models) or $80,000 (SUVs, vans, and trucks). The manufacturer’s suggested retail price influences this calculation.
A possible $4,000 credit exists for those looking to purchase pre-owned EVs. The criteria for capitalizing on the full $4,000 are as follows:
- The used EV must be purchased between 2022 and 2032.
- Your gross income does not exceed $75,000 for (single filers), $150,000 (joint filers), or $112,500 (heads of household).
- The used EV must cost less than $25,000. The sales price influences this calculation.
Green Home Technology
Homeowners can apply for consumer tax credits for installing clean energy technologies into their homes, including solar panels, heat pumps, electric water heaters, etc. The Energy Efficient Home Improvement Credit covers 30% of home improvement costs for green technologies in a given year – starting in 2023.
Businesses are the leading contributors to climate change. Until now, the flawed and easily exploitable carbon credit system has been the main avenue most businesses take to offset emissions. This system has failed to create any real change.
Unfortunately, switching to green technologies is a complicated and costly undertaking many businesses were hesitant to tackle even before the pandemic brought the world economy to a standstill.
The IRA eases this trepidation with incentives similar to those awarded to individuals renovating their properties with green technologies. Some of these incentives include:
- An increase to the Research and Development Tax Credit for small businesses from $250,000 to $500,000.
- Tax credits for using renewable power (solar, wind, geothermal, nuclear, etc.)
- Tax credits for contractors and home manufacturers that install green technologies into homes.
- Federal land leasing for clean energy projects – and some oil/gas projects – may be granted.
Making Change Cheaper
Adopting green energy products is more important than ever, but exorbitant costs have kept these technologies out of the hands of many individuals and businesses. Hopefully, the economic incentives in the IRA will motivate a migration toward cleaner energy.