Wrapping up our breakdown of the White House’s Build Back Better Budget, we will be covering the changes to tax compliance and IRS enforcement as well as green energy incentives. Previously, we’ve discussed implications on businesses, individuals, and international impacts which all have had a lot of edits in the development of the bill, however, green energy and IRS enforcement have remained for the most part intact throughout this process. Let’s jump right in:
Tax Compliance & IRS Enforcement
As the Build Back Better Budget had a very high price tag the Government struggled to find ways to generate money to fund the bill. One method decided on was to try and close the “tax gap” by giving the IRS more resources. The “Tax Gap” describes the difference between what should be collected as opposed to what is collected by the IRS. It is believed that by providing the IRS with additional funding and more freedom in assessing penalties. This being said, it is becoming more important than ever to tax plan appropriately to reduce tax liability appropriately.
Push for Green Energy
Green energy was always a major focus of the Build Back Better Act and was able to have many pieces survive edits the bill underwent. Overall, the bill provides over half a trillion dollars in green energy incentives and investments with $320 billion of that devoted to tax credits.
Electricity from Renewable Resources
Within the proposal, a credit for electricity produced from certain renewable resources is extended through 2033. This renewable energy production credit is a per kilowatt-hour (kWh), dishing out as much as $0.025/kWh.
Energy Investment Credit
The energy investment credit will also be extended through 2033, with phase-downs in the last two years. The federal investment tax credit (ITC) is an economically valuable tax incentive offered to taxable business entities that invest in certain energy technologies. The ITC is based on a percentage of the qualifying upfront capital costs of a project and directly reduces a business’s tax liability.
Electric Transmission Property Credit
This new tax credit would provide a 6% investment credit for investments in qualifying electric transmission property. Electric transmission property is considered tangible depreciable property such as electric transmission lines. The credit also can be increased to 24 percent when wages and workforce requirements are met.
Zero Emissions Facility
A new credit provides a 30% investment tax credit for qualified investments in the qualified property as part of a zero-emissions facility. These facilities must produce electricity, produce no greenhouse gasses, and do not qualify for another energy credit. There are also wage and workforce requirements to receive this credit.
Residential Energy Incentives
This credit is for nonbusiness property has been modified and extended through 2031 by this proposal. The credit applies to energy-efficient windows and doors and the lifetime maximum for the credit has been replaced with an annual limit of $1,200. In addition to the change in amount, the credit has been changed to run through 2033.
A credit for the purchase of an electric vehicle has been extended through 2031 and enhanced. The proposal eliminates the current credits limitation on the number of vehicles produced by a specific manufacturer. The base credit has also been increased with further increases available for vehicles and batteries produced with certain working requirements such as unions with the maximum amount for the credit maxing out at $12,500.
These are tricky waters to navigate when incorporating these credits into your tax planning. For a better understanding feel free to give us a call at 516-541-6549.