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Understanding the Inflation Reduction Act – A PYA Overview
Published August 16, 2022

Understanding the Inflation Reduction Act – A PYA Overview

On August 12, the House passed the Inflation Reduction Act of 2022 (IRA 22).  This legislation – widely panned for the lack of impact it is expected to have on inflation – includes significant climate change and energy transformation provisions. With Americans particularly feeling inflation in the areas of rising food and energy prices, IRA 22 is intended to afford a diverse set of tax provisions and incentives that will help move American living one step toward more reliance on energy-sustainable solutions – in hopes of a brighter, greener future. Originally referred to as the Build Back Better Act, this bill not only provides funding, but also a wide array of measures such as prescription drug reform, and green energy credits related to vehicles and real estate. However, there are also additional tax implications to consider – and we want to highlight a few of those changes in this high-level summary.

Corporate Alternative Minimum Tax

IRA 22 imposes a new corporate alternative minimum tax (AMT). The AMT is triggered when it exceeds the taxpayer’s regular tax. The starting point for computing the AMT is the corporate entity’s three-year average annual adjusted book income prepared in accordance with the Generally Accepted Accounting Principles (GAAP). The corporate AMT threshold income test is set at $1 billion for all corporations treated as a single employer. Approximately 110 corporations are expected to meet these criteria, so the scope of this change is very limited.

Stock Repurchase Excise Tax 

For taxable transactions post-2022, in lieu of keeping the carried interest tax rules as is, IRA 22 imposes a 1% excise tax on the fair market value of any stock traded on an established securities market and repurchased by a corporation during the tax year. This new tax also applies to purchases of publicly traded foreign corporate stock.

Green Energy Credits

Those planning for commercial real estate leasehold improvements may be able to take advantage of the Modification of Energy Efficient Commercial Buildings Deduction. For example, installing energy-efficient lighting in common areas of a commercial rental property could result in significant tax savings.

In addition, the New Energy Efficient Home Credit is available for new homes meeting energy-saving requirements—this credit has been extended through 2032.

Finally, the Clean Vehicle Credit enables electric vehicle purchases to generate tax savings for individuals.

Closing News

There are many intricacies to this new legislation that could have an impact on your business and personal tax compliance and planning. Our tax professionals are ready to help you explore strategic areas of opportunity found in IRA 22.

To learn about possible tax implications regarding the Inflation Reduction Act, join our webinar on the topic. 

For more information on the Inflation Reduction Act, view our article “Inflation Reduction Act: Businesses, Homeowners, and Carbon Emissions Reductions.

If you would like to speak with a PYA tax professional about any aspect of the Inflation Reduction Act of 2022 or need guidance related to this or any business advisory, or tax planning and strategy matter, one of our executive contacts would be happy to assist. You may email them below, or call (800) 270-9629.

Executive Contacts

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