What You Need to Know About the Inflation Reduction Act |

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What You Need to Know About the Inflation Reduction Act

Taxes

Congress actually got something done this fall.

Scaled back from the original $3.5 trillion Build Back Better Plan, a revised $700 billion spending package was signed into law in August. A huge win for Democrats ahead of the midterm elections, the Inflation Reduction Act is a win for us, too – but also only scrapes the surface of what we need. 

What can you buy with $700 Billion?!

A few highlights of the Inflation Reduction Act include: 

  • A minimum 15% corporate tax on businesses that earn $1 billion/year.
  • Investments in green and renewable energy to reduce carbon emissions by 40% by 2030; extends the $7,500 EV vehicle tax credit (but with some limitations! – more in an upcoming email) and adds a $4k credit for buying a used EV.
  • Medicare will be able to negotiate prescription drug prices; extends free vaccines through 2023; caps out-of-pocket drug costs at $4k/year or less in 2024 and $2k/year by 2025; lowers healthcare costs on the Affordable Care Act marketplace.
  • Gives the IRS $80 billion for taxpayer services and enforcement. I’ve talked about this before, but giving the IRS money is a good thing as it’ll make the process more efficient and provide better, faster service for taxpayers.

This all sounds great, but wait a minute…

Let’s talk about that Electric Vehicle Credit portion of the IRA

You see, there’s this thing that politicians do sometimes that really pisses me off and it’s when they package something up to sound awesome, but it’s really a bunch of bullsh*t behind the scenes.

We all know that we should be driving electric vehicles to save the Earth, right? But since it’s expensive to replace your car, the government wants to incentivize you to do it by giving you a tax credit. 

The tax credit itself has been around for a bit – up to $7,500 on the first 200,000 cars sold by each brand. 

The Inflation Reduction Act changes the rules a bit.

This bill:

  • Offers tax credits of up to $7,500 for new EVs and $4,000 for used EVs
  • Removes the 200,000 vehicles per brand phaseout (that has made Tesla, GM, and Toyota EVs ineligible for credits since that limit was already reached)
  • Adds in price caps ($80k for SUVs, pick-up trucks, and vans; $55k for sedans, hatchbacks, wagons, etc.).
  • Limits credit to those making $150k if single or $300k if married filing jointly.
  • Requires EVs (including the batteries) to be built in North America.

So, where’s the problem? 

Well… as much as I’m all about buying American, that’s not exactly possible in the EV market (yet). Most of the parts for our EVs still come from China and Russia, and we just don’t have the infrastructure yet to make entire EVs here in the states.

Which means that very few cars (if any) currently qualify for this new tax credit.

The second issue is with the price caps and the income limitations. Now I’m normally fine not giving wealthy people a tax break, but here is one time where I’m actually going to advocate for it (I know… but stick with me for a second).

You know the worst offenders on the road right now? Those massive Suburbans, Tahoes and other massive people movers. And you know who owns the majority of those massive people movers? People who can afford to have lots of people (i.e., kids) and who tend to be on the wealthier side. 

So, when you put a cap on the price of SUVs and the income limits of the taxpayers that qualify for the credit, you’re effectively eliminating the only options those massive-people-mover owners would consider. Would I love for them to trade in their Escalade for a compact, reasonably priced EV SUV? Sure, but it’s not gonna happen.

This is the one instance where I’m willing to trade equity in tax laws for saving our planet. Because we are literally running out of time. 

Do these new limitations mean that you shouldn’t sign up for a brand-new EV? 

Not at all. But check with your dealer and your tax accountant to make sure the car you’re considering gets you the incentives you want.

Want to see if the car you’ve been eyeing qualifies? Use this site (but note – it’s still in the process of being updated for the new law).

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