The IRA is a 10-year plan that covers new and reinstated tax laws that will affect individuals and businesses, including a number of credits and deductions. One of the main provisions of the IRA is the change in the eligibility rules to claim a tax credit for clean vehicles. This took effect as soon as the law was signed. The IRA also provides funds to improve the services and technology of the Internal Revenue Service (IRS) to make tax filing easier for taxpayers.
The IRA includes several credits and deductions related to clean energy, such as:
– Home energy credits: These include the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit, which allow homeowners to claim a credit for installing energy-efficient or renewable energy equipment in their homes, such as solar panels, heat pumps, or insulation.
– Clean vehicle credits: These include credits for new electric vehicles purchased in 2023 or after, new electric vehicles purchased in 2022 or before, used electric vehicles, and commercial clean vehicles. The amount of the credit varies depending on the type, cost, and battery capacity of the vehicle. The credit also requires that the vehicle meets certain domestic content and manufacturer requirements.
– Excise tax credits for alternative fuels, biodiesel, and renewable diesel: These are credits for producers and users of certain fuels that reduce greenhouse gas emissions, such as biodiesel, renewable diesel, compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and electricity.
– Sustainable Aviation Fuel Credit: This is a credit for producers of sustainable aviation fuel that reduces lifecycle greenhouse gas emissions by at least 50% compared to conventional jet fuel.
– Clean Hydrogen Production Credit: This is a credit for producers of clean hydrogen that reduces lifecycle greenhouse gas emissions by at least 90% compared to conventional hydrogen production methods.
– Elective payment and credit transfer: This is a provision that allows certain clean energy producers to elect to receive a direct payment from the Treasury instead of claiming a tax credit. It also allows certain clean energy credits to be transferred to other taxpayers.
The IRA also reinstates some tax laws that were previously expired or repealed, such as:
– Corporate Alternative Minimum Tax (CAMT): This is a tax that applies to corporations with taxable income above a certain threshold. The CAMT ensures that corporations pay at least some tax regardless of their deductions and credits. The CAMT was repealed by the Tax Cuts and Jobs Act of 2017 but reinstated by the IRA at a higher rate of 15%.
– Superfund chemical excise taxes: These are taxes on certain chemicals and petroleum products that fund the Superfund program, which cleans up hazardous waste sites. The taxes were expired since 1995 but reinstated by the IRA until 2032.
– Petroleum Tax – Hazardous substance superfund financing rate: This is a tax on crude oil and petroleum products that also funds the Superfund program. The tax was repealed by the Tax Cuts and Jobs Act of 2017 but reinstated by the IRA until 2032.
The IRA also extends some tax laws that were set to expire soon, such as:
– Extended fuel tax credits: These are credits for biodiesel, renewable diesel, second generation biofuel, alternative fuel mixture, and alternative fuel excise tax.
How do these credits impact the construction industry?
The construction industry can benefit from the IRA in several ways. First, the construction industry can take advantage of the home energy credits by providing energy-efficient or renewable energy equipment and services to homeowners. This can increase the demand for construction projects and create jobs in the sector. Second, the construction industry can benefit from the clean vehicle credits by purchasing or leasing clean vehicles for their fleets or employees. This can lower their fuel costs and reduce their carbon footprint. Third, the construction industry can benefit from the elective payment and credit transfer provision by partnering with clean energy producers who can transfer their credits to them. This can lower their tax liability and increase their cash flow. Fourth, the construction industry can benefit from the excise tax credits for alternative fuels, biodiesel, and renewable diesel by using these fuels for their vehicles or equipment. This can also lower their fuel costs and reduce their carbon footprint.
The IRA is a comprehensive law that aims to fight inflation, lower the deficit, reduce prescription drug prices, and reduce carbon emissions. The construction industry can benefit from many of the credits and deductions in the law by investing in clean energy and improving their efficiency. The IRS provides guidance and resources on how to claim these credits and deductions on their website: https://www.irs.gov/inflation-reduction-act-of-2022
