By Nick Strain, CFP®, CPWA®, AIF®, Senior Wealth Advisor at Halbert Hargrove
After much negotiation this year in the Senate and House, the Inflation Reduction Act was passed and signed by President Biden on August 16th 2022.
The package includes $368 billion of investment and tax credits to companies investing in renewable energy projects and producing energy from renewable sources. It also includes tax credits for manufacturers to create electric vehicles and other components within the low carbon economy.
The bill will spend $98 billion to extend Affordable Care Act coverage for low to middle income individuals and families for three years. Prescription cost relief to those on Medicare is also a cornerstone of the Inflation Protection Act’s reforms.
The reach of this Act is vast, from changes to the tax code to renewable energy stimulus. But how will it impact your personal finances? Here are three areas that could make a difference.
The Act’s provisions for tax credits for new and used vehicles are fairly complex. We suggest that you reach out to your CPA to discuss if you are eligible for a tax credit of up to $7,500 for new electric vehicle (EV) cars and up to $4,000 for used EV cars. Some of the fine print:
Many energy-efficient home improvements are eligible for tax rebates. It’s important to keep good records to give to your CPA as part of your tax preparation process, to determine if you are eligible for tax credits. Projects covered by the Act include solar panels, energy storage, and energy-efficient windows and heating systems.
The Act’s changes to Medicare center around prescription drug price reform. These are several of the most impactful:
Since there have been many iterations of this bill, it’s worth noting that there are no direct personal income tax increases on individuals and families.
These are the Act’s chief sources of revenue generation:
In fact, the Act’s creators claim that these provisions will ultimately result in a Net Deficit Reduction. With total revenue estimated at $790 billion and a total cost of $485 billion, the envisioned net of $305 billion would decrease the national deficit by that amount.
Of course the overarching debate is: Will there be reduction in inflation – and if so, when? According to a study by Penn Wharton of the University of Pennsylvania, “The Act would have no meaningful effect on inflation in the near term but would reduce inflation by around 0.1 percentage points by the middle of the first decade.”[i]
Ultimately, time will tell us about long-term outcomes. For the purposes of this article, the central question for us is how the Act will impact you – and whether there are provisions that could provide opportunities and/or savings for you and your family. Everyone’s experience of the Act’s reforms and tax credits will vary, based on lifestyle, aspirations and resources. We’re here to discuss your options if you’d like to engage with us.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.