The Inflation Reduction Act and other items passed by Congress may affect decisions you make in 2023 and beyond. Some of these were immediately in place as of August 16th, 2022. While student loan forgiveness has dominated headlines, there are other important changes to be aware of as well as you make financial decisions.
ALTERNATIVE (ELECTRIC) VEHICLE TAX CREDIT
The existing credit of up to $7,500 for new electric vehicle purchases was extended to 2032 and a new credit was added of up to $4,000 for used electric vehicles more than two years old. The caveat is for vehicles purchased after August 16, 2022, final assembly has to be in North America so this significantly limits which vehicles qualify now (https://afdc.energy. gov/laws/inflationreduction-act) and no longer includes foreign companies like Kia, Hyundai, or Toyota. On a positive side, the previous exclusion on tax credits by manufacturer once they sell 200,000 vehicles has been removed, making GM and Tesla eligible purchases once again. The credit is limited to the vehicle’s value as follows:
- New Trucks, SUVs & Vans – $80,000
- New Sedans – $55,000
- Previously Owned Vehicles – $30,000
New income limits to qualify have also been added:
- Couples – $300,000
- Individuals – $150,000
The rules for this credit continue to change based on the release of additional information by different government entities. As a result, the safest way to determine if your vehicle will qualify for the credit is to enter the VIN at https://vpic.nhtsa.dot.gov/decoder/ before you make a purchase.
ENERGY EFFICIENT HOME IMPROVEMENT CREDIT
Starting in 2023, homeowners may take a tax credit of 30% for the cost of installation and equipment of solar panels, wind power systems, and geo-thermal heat pumps. The prior lifetime limit for credits for eligible appliances was replaced by a $1,200 annual limit. This allows for greater use of the credit over time. In addition, credits will be available for efficient exterior doors, windows, water heaters, and biomass stoves ranging from $250 to $2,000 per year. You can find more details on these credit limits at https://www.kiplinger.com/taxes/605069/inflationreduction-act-tax-credits-ener-gy-efficient-home-improvements.
STUDENT LOAN FORGIVENESS
Another significant change involves a new plan for student loan forgiveness. Qualifications for forgiveness include:
- Couples – $300,000
- Individuals – $150,000
The rules for this credit continue to change based on the release of additional information by different government entities. As a result, the safest way to determine if your vehicle will qualify for the credit is to enter the VIN at
- Loans must be federal student loans taken out prior to July 1, 2022
- Household income below $125,000 for an individual or $250,000 for a couple for the 2020 or 2021 tax year.
Pell Grant recipients can have up to $20,000 forgiven, others may have $10,000 forgiven. An important element to the program is that forgiveness amounts are capped per borrower, not per household. This means that if you and your spouse both have federal student loans, then you both could qualify. The process could move quickly if you already have had your income verified through income-based repayments and would then show up as a credit in your student loan account. If your income is not verified, an application will be available in the coming weeks to qualify.
Currently, the student loan debt relief is blocked by court orders. In the meantime, they extended the pause on student loan repayments until the earlier of 60 days after implementation of the debt relief program is allowed or litigation is resolved or 60 days after June 30, 2023. You can find more information and updates at https://studentaid.gov/debt-relief-an-nouncement/.
By Steve Martin, CFP®, CPA, JD, LLM
Nashville, TN