Change is gonna come... Tax Changes that is! 2022 Tax Changes
The Inflation Reduction Act of 2022 provided some last minute changes that affect 2022 returns. Below you’ll find a summary of the major provisions affecting individuals and businesses.
Take a read below - There’s plenty more so if you have questions don’t hesitate to reach out to CORE.
Individual Changes & Premium Tax Credit
The existing refundable credit for medical insurance premiums continues for 2022. For 2021 and 2022 the credit was increased. All individuals with premiums in excess of 8.5% of their household income are eligible through 2025.
Nonbusiness Energy Property Credit
This was an existing credit, but it has been greatly expanded beginning with the 2023 tax year. The credit is capped at $1,200 annually along with annual caps by type of improvement. The credit is non-refundable (meaning you have to owe taxes to take the credit) and is equal to 30% of qualified energy efficient improvements(e.g. exterior windows, doors, insulation), home energy audits, and residential energy property (i.e. heat pumps, water heaters, furnaces).
Residential Energy Efficient Property Credit
Again this was an existing credit, but is expanded for 2022 through 2034. It has been renamed to the Residential Clean Energy Credit. There is no annual or lifetime caps on this credit (except for an annual cap on fuel cells). For 2022 and 2023 the credit is 30% of eligible property, primarily residential solar panels, but includes solar water heaters, geothermal heat pumps and small wind turbines.
Clean Vehicle Credit
The IRA increased the amount of this credit to a maximum of $7,500, but there are new limits for the manufacturer. Not every electric vehicle will qualify.
Alternative Fuel Refueling Property Credit
An existing credit that is extended for the 2022 and 2023 tax years (actually until 2032). It is a non-refundable credit of 30% of a home charger capped at $1,000 per charger. Beginning in 2023 this credit is limited to taxpayers in low-income census tracts and rural areas.
The IRA also created a credit for used clean vehicles for sales after August 16, 2022. The credit is 30% of the sale price up to $4,000. There are income limitations on who can take the credit.
Virtual Currency Question
Beginning in 2021, and continuing for 2022, page 1 of the 1040 requires an answer to the question “At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” The IRS is stepping enforcement on cryptocurrency, so make sure you are reporting correctly.
Business Changes
There were changes to the corporation Alternative Minimum Tax (AMT) and a new tax on stock buybacks. These don’t apply to small businesses, so we won’t cover.
There were a ton of new credits and changes around “energy”.
Commercial buildings that meet requirements (50% efficacy) and reduce their total energy usage by 25% are eligible for accelerated depreciation. This is not new, but the requirement thresholds have been lowered.
There is also a new credit for Commercial vehicles (and mobile machinery) designated as “clean”. The credit is up to 30% and is limited to $7,500 for vehicles weighing less than 14,000 pounds. For all other vehicles the credit is capped at $40k per vehicle.
A new credit was created for manufacturing of eligible components such as solar and wind energy and batteries. Additionally, there were two new credits for the production of “clean” energy of 6% of eligible property OR .3 per kWh placed in service after December 31, 2024. These credits are exclusive of each other and can actually be sold if not used.
FYI:
The IRS changed the rules for applying many unused credits. Now they can be carried back 3 years and carried forward 22 years. All of the affected credits involve alternative energy.
In 2021, the IRS introduced forms K-2 and K3 for partnerships and S-Corporations. For 2022, these forms are required. These forms give the IRS additional information on things like basis.
