Among the major provisions of the proposed Build Back Better Act that were carried forward into the Inflation Reduction Act are those that address green energy. Much of the expenditures in the act are related to incentives for green energy, either in the form of continuing and expanding existing credits, or creating new ones.
And although many of the changes do not take effect until the future and have yet to be "fleshed out" in the form of regulations and other guidance, clients will expect tax practitioners to be familiar with them.
"The CPA has to look at the legislation and be familiar with it," cautioned Deb Rood, risk control consulting director for CNA, the underwriter for the AICPA Professional Liability Insurance program. "Almost two-thirds of professional liability claims are for failure to properly advise clients or for providing incorrect advice," she said. "The IRA has a lot of green energy provisions, and clients will expect the CPA to tell them about the opportunities. If the CPA doesn't, a claim might arise."
"CPAs should study the IRA and know in big-picture terms the things that might impact the client," she advised. "And then go ahead and send out newsletters describing the big picture, and tell clients to contact you if they have questions. Put the onus on the client to contact you."
There are three categories of benefits in the green energy portions of the IRA, according to Dan Gayer, senior tax manager at Top 100 Firm Baker Newman Noyes: "These are the electric vehicle component, the home energy component, and the solar investment and tax credit component," he said.
"Especially on the electric vehicle and the home energy side, we see the legislation as a targeted effort to move industry from the luxury to the mainstream consumer," he said. "The electric vehicle side is a push to more of a mass market. Starting in 2023, there will be income limitations, so it will cut off those making more than $150,000 for individual filers or $300,000 for married couples. In addition, the cost of a qualifying vehicle will have to be less than $50,000 for cars and $80,000 for trucks and SUVs. It's clearly intended to push manufacturers to make less expensive vehicles."
There are additional credits aimed at municipal transit and large delivery trucks, he added: "There's a credit of up to $40,000 per vehicle for clean vehicles over 14,000 pounds. These will start to make inroads in the large commercial vehicle market. "
Another new credit is for used electric vehicles up to $4,000 or 30% of the purchase price for used electric vehicles. "The income limitation is $75,000 for single taxpayers or $150,000 for married filing jointly," he said. "That's half of the new vehicle limitation, so it's targeted to lower- and middle-income taxpayers. It's probably not viable the way the market is currently. It's intended for the future when there will be a market for used vehicles."
The home energy credit regime has been modified. It has been expanded from a $500 lifetime cap to an annual $1,200 cap, so it's much more useful. The credit is 30% of the cost of the qualifying property up to the total annual amount of $1,200, and within that are limits for particular categories. For example, not more than $500 is allowed for doors in a given year, or $600 for windows or equipment like washing machines.
"All of these expansions go into effect in 2023, so if taxpayers are thinking about upgrading their homes, it's probably better to wait until 2023 and then spread out the work," advised Gayer.
There are a lot of other new programs, with separate rules, he added. The High Efficiency Electric Home Rebate Program, for instance, is completely new. "It allows rebates of up to $14,000, much larger than the credit, but it applies to similar things like heat pumps and other energy-efficient improvements. It's based on the area median income. Applicants can't have greater income than 150% of the area median. The Treasury will give grants to states and local state departments of energy will be charged with administering the program through local electricians and installers to provide rebates at the point of sale."
There's still a lot that needs to be fleshed out, and each state could have different rules, according to Gayer. "If a taxpayer is interested in upgrading, there's a potential for significant rebates, but they will need to wait for the Treasury and individual states to come up with regulations," he said.
The green energy provisions in the act are, by themselves, a huge piece of legislation, he observed: "One question is whether these incentives are economically viable. Are companies going to buy in, and will taxpayers participate? There's a lot of potential, both on the industry side and the consumer side."
