How Will the Inflation Reduction Act Impact Your Dealership?
How Will the Inflation Reduction Act Impact Your Dealership?
There’s a major benefit your dealership can tap into right now and it stems from a powerful resource: clean, renewable energy.
The Inflation Reduction Act was signed into law in mid-August. It’s the biggest climate investment by the federal government in the history of the United States, and if it works as intended, it will lessen our reliance on overseas manufacturing, among other goals.
Why does that matter to your dealership? Inside the new law you’ll find tax incentives designed to promote production of electric vehicles, renewable energy, and certain minerals in the United States.
Tax Code and Credits Changes
The bill includes new rules for large C corporations and provisions for business, individual, and non-individual deductions and credits, all primarily related to energy. Whether it’s creating energy, utilizing renewable sources, or improving efficiency of real property or vehicles, climate change and energy security is the key driver of most of the legislation’s provisions.
Take for instance, the electric vehicle (EV) is now referred to as the clean vehicle (CV) within the tax code. Dealerships must be aware of the changes to the available tax credits on the sale of CVs to customers, as the number of eligible vehicles by manufacturer was eliminated and the credit amounts have been adjusted. This is excellent news for your dealership. However, a qualifying CV only includes those where final assembly occurs in North America.
Beginning in 2024, taxpayers can also elect to transfer the applicable tax credit directly to the dealer, to be used as a purchase price reduction. Dealerships must also be aware of the new credit for a previously owned CV.
Sales of CVs between now and December 31, 2022, are generally still subject to the pre-Inflation Reduction Act rules but must follow the new North America assembly requirement. Dealers will be required to provide taxpayer and vehicle information to Treasury for tax-credit eligible vehicles.
Tax Changes Coming for Some Entities
A few other items of note: C-corps with revenues exceeding $1 billion must now pay a minimum tax of 15% on their adjusted financial statement income. Additionally, corporations whose stock is traded on an established securities market are now subject to a new excise tax. For any stock repurchased by the corporation, an excise tax of 1% of the fair market value will now be imposed.
Non-Energy Component of the Inflation Reduction Act
A key non-energy component of the bill relates to the extension of Excess Business Loss limitation rules for non-corporate taxpayers. Net losses from a trade or business more than $250,000 ($500,000 if married filing jointly) are limited and converted to a Net Operating Loss, to be carried to the following tax year. The Inflation Reduction Act extended this potential loss limitation to 2028.