The Inflation Reduction Act (IRA) has been heralded as one of President Joe Biden’s most sweeping accomplishments. While it may not ease inflation, as its name suggests, the legislation invests nearly $740 billion to address several social, economic and environmental issues. In today’s divided Congress, ratification of anything this significant can only be viewed as a D-Day type victory.
Trying to decipher the details of the 725-page bill and how it will benefit the average taxpayer can be daunting. Yet, given the reach of the new law, the IRA will help millions of Americans. For homeowners looking to upgrade their residences, the IRA offers a range of tax credits, rebates and incentives promoting energy-efficient renovations. Solar panels, wind turbines and residential battery storage units can qualify for a 30 percent tax savings to offset cost and installation.
Updating home systems such as adding a heat pump can earn homeowners as much as $8,000 in rebates. Unlike a standard furnace, which forces warm air into a home, a heat pump does double duty by not only sending warm air into the living space but also drawing it out. This type of system can substitute for both a furnace and a home air conditioning unit. Replacing two inefficient systems with one environmentally friendly component is a considerable step toward sustainability.
The IRA also has incentives for installing energy-efficient windows and exterior doors and for updating a home’s insulation, wiring and ventilation. Some qualified homeowners can earn rebates for small-scale improvements as well. Replacing older stoves, cooktops or ranges with electrical appliances that have received the Environmental Protection Agency’s (EPA) Energy Star rating will bring significant savings. The Energy Star label acknowledges a product has been certified to the EPA’s efficiency standard.
Beyond supporting sustainability for the home, the IRA addresses the growing climate crisis in other important ways. In 2010, the federal government offered $7,500 in tax credits toward the purchase of an electric vehicle. The extent of this credit, however, depended on the number of fuel-efficient vehicles an automaker sold. If sales topped 200,000 units, the rebate would slowly phase out. The new law does away with this condition, allowing companies to continue to offer the full value of this incentive. Additionally, the IRA has created a new credit toward the purchase of a used EV, allowing up to a $4,000 tax credit. The pre-owned vehicle must meet certain conditions, but this opens a market for automobiles whose long-term value was uncertain.
On another front, the bill invests in the expansion of Medicare and, for the first time, allows the federal government to negotiate lower prescription drug prices. For seniors, the IRA is designed to cap annual costs for insulin and other high-priced medications. It will extend subsidies for the Affordable Care Act recipients that were scheduled to expire this year through 2025.
The IRA establishes Environmental Justice Block Grants to promote investments in low-income and disadvantaged communities. The Internal Revenue Service, which has been underfunded for decades, will be revitalized by an $80 billion investment over 10 years. This will help the department improve taxpayer services, modernize its business systems and enhance its enforcement division.
The Inflation Reduction Act is a far cry from the president’s original Build Back Better law, but even in this scaled-down version, it is poised to offer solutions for critical issues that have been set aside for too long.
