The Inflation Reduction Act of 2022 represents one of the most consequential pieces of economic policy in recent U.S. history. This legislative bill that the Democrats muscled through the Senate was signed into law by President Joe Biden on Aug. 16th.
President Biden is the most pro-worker, pro-union President in history, and the Inflation Reduction Act is built on such a legacy.
By signing this bill, President Biden is delivering on his promise to build an economy that works for working families. This historic law lowers costs for families, creates good-paying jobs for workers, and grows the economy from the bottom up and the middle out. It’s the most progressive action on tackling the climate crisis in American history, which is able to lift up American workers and provide reasonable-paying, union jobs across the country.
$385 billion is going into combating climate change and bolstering U.S. energy production through changes that would encourage nearly the whole economy to cut U.S. carbon emissions by a minimum of 50 to 52 percent below 2005 levels by 2030. Also emphasized is that this bill would spur American energy independence more broadly by including natural gas and other sources of energy consumption, since recent international disruptions exposed our domestic reliance on petrostates’ fossil fuel production.
The bill uses two main levers: major new incentives for private industry to produce more renewable energy and other incentives for households to transform their energy consumption. The second set of incentives is expected to offer consumer relief for the higher energy prices now and in the years to come.
What are the Tax Credits and Rebates that the Bill Offers?
The bill includes numerous investments to address climate change and slow down global warming, including tax credits for households as incentives for ordinary Americans to go green and save some green, too
- Energy Efficient Home Improvement Credit
One of the tax credits that homeowners may have familiarity with – the Nonbusiness Energy Property Credit – actually expired at the close of 2021. However, the Inflation Reduction Act brings it back to life, improves it substantially, and replaces its name with– the Energy Efficient Home Improvement Credit.
The law also contains 10-year consumer tax credits to bring down the cost of heat pumps, rooftop solar, electric HVAC, water heaters, wood-burning stoves, solar, batteries and geothermal.
· Residential Clean Energy Credit
The second credit homeowners have their eyes on is the extant Residential Energy Efficient Property Credit, which also gets an updated name under the Inflation Reduction Act. It’s currently known as the Residential Clean Energy Credit. The credit reduces the cost of installing qualifying systems that use solar, wind, geothermal, qualified battery storage technology, biomass or fuel cell power to produce electricity, heat water or regulate the temperature in your home. Previously, the credit was scheduled to expire in 2024 but now is extended through 2034.
- Alternative Fuel Refueling Property Credit
Alternative Fuel Refueling Property Credit expired at the close of 2021, but the Inflation Reduction Act gave it life again by extending its application through 2032.
How most homeowners may use the “qualified alternative fuel vehicle refueling property” might be to purchase equipment to recharge an electric vehicle. (The credit also applies to equipment designed to store or dispense an alternative fuel (other than electricity) for motorized vehicles.) Starting in 2023, the Inflation Reduction Act also clarifies that the credit applies to the acquisition of “bidirectional” charging equipment, which charges the battery of an electrical vehicle and permit you to discharge electricity from the battery back out to the electric grid.
- Clean Electric Vehicle Tax Credit
Extending tax credits for electric vehicles made it into the bill. The tax credit will remain at its current level, up through $4,000 for a second-hand electric vehicle and $7,500 for a brand-new one. That would also apply to vehicles whose manufacturers aren’t eligible for an existing EV credit, like Tesla and General Motors.
Millions of people would qualify for these credits. Couples who earn less than $300,000 a year or individuals who earn not more than $150,000 would be eligible. The EV credits would begin taking effect next year.