The Inflation Reduction Act: What Tax Professionals Need to Know

by Jennifer Smith, CPA, JD, CDEI | Jan 10, 2023

As a tax professional, it's your responsibility to stay on top of the latest changes to the United States tax code, as well as any laws that may affect your clients come tax season. The passage of the Inflation Reduction Act in August of 2022 will have some major impacts on tax credits, subsidies, income reporting, and more come the first quarter of 2023. So, what are some of the most important things tax professionals need to know about the Inflation Reduction Act as it relates to their clients? We've got you covered.

The Inflation Reduction Act: What Tax Professionals Need to Know

Tax Credits for Energy-Efficient Home Improvements

First, the Inflation Reduction Act makes some changes to tax credits associated with certain energy-efficient home improvements. While these kinds of credits are not a new concept, the Inflation Reduction Act expands on many of these qualifying improvements and changes the existing $500 lifetime limit to a renewable $1,200 annual credit limit. Likewise, the act now includes some energy-efficient home improvements that were not covered in the past, such as the installation of some electric panels, boilers, and biomass stoves.

Homeowners who purchased electric vehicles (EVs) in 2022 may also be eligible for credits through the Inflation Reduction Act, as may homeowners who purchased and installed "bidirectional" EV charging equipment for their homes.

Health Insurance Subsidies

The Inflation Reduction Act also expands on subsidies available to taxpayers purchasing their own health insurance. Specifically, the act aims to make health insurance more affordable for those who need to buy it from the marketplace directly by expanding subsidies put into place by the 2021 American Rescue Plan. With these expansions in place, more families and individuals will qualify for health insurance subsidies on qualified health plans (those that have been certified by the Health Insurance Marketplace) than in the past, as eligibility for subsidies is now set above 400% of the federal poverty level (FPL). These subsidies, of course, must be reported on tax returns, so tax professionals can expect to assist many clients with this in 2023 and beyond.

Limitations on Excess Business Losses

Finally, the Inflation Reduction Act extends the existing limit on excess business losses for noncorporate taxpayers through December 31, 2028. This limits the liability of these taxpayers to deduct business losses that exceed an indexed-for-inflation amount. Previously, these limitations on excess business losses were set to expire in 2026—so the passage of the Inflation Reduction Act has extended these by another two years.

The Bottom Line For Tax and Accounting Professionals

As you can see, there's a lot to keep up with when it comes to tax changes set forth by the Inflation Reduction Act. This is sure to be a busy season for tax professionals, especially as taxpayers struggle to understand how the act impacts them and their tax credits/reporting. By staying on top of these changes yourself, you can confidently provide the best service to your clients and ensure they're not leaving any of their hard-earned money on the table. 

As a tax or accounting professional, you can make sure you have the knowledge and advice to offer your clients by learning more about the Inflation Reduction Act with WebCE. WebCE is excited to offer the online course Inflation Reduction Act, designed for accountants and CPAs, Enrolled Agents (EAs), and other tax professionals. This course addresses the provisions of the Inflation Reduction Act most likely to be of interest to tax preparers.