by Tim Kingsbury, Wealth Manager at Veris Wealth Partners


August 2022 saw encouraging news coming from Washington with the passage of the Inflation Reduction Act (IRA)1 and the introduction of the Biden Student Loan Forgiveness plan.2 The potential effects of these initiatives are too extensive to unpack quickly, but this brief overview offers insights into a few of the most promising benefits and some of the limitations.

Inflation Reduction Act / IRA

The IRA is an extremely complex piece of legislation that includes new spending, taxes, and policies that touch on climate and our environment, energy, manufacturing, transportation, health care, and other important parts of our society and our economy.3

Here is a look at a few of the credits and rebates included in the legislation that are likely to have a major impact for Americans and for our environment.

The IRA’s EV Tax Credit

Tax credits are a dollar-for-dollar reduction in tax liability so they are more valuable than a tax deduction. The IRA includes a $7,500 New Electric Vehicle Tax Credit including two separate credits that take into account where the battery minerals were sourced and assembled.4 After the IRA was enacted on August 16, 2022 the tax credit was immediately effective for qualifying electric vehicles for which final assembly occurred in North America.5

We believe that one major potential positive impact of the IRA’s new credit is that it is likely to accelerate the onshoring of EV battery manufacturing in the United States so that we see significant growth over time. More information and changes to the eligibility requirements will be forthcoming in 2023.

Limitations

  • The IRA sets a Manufacturers Standard Retail Price (MSRP) cap of $55k for cars and $80k MSRP cap for new vans, trucks and SUVs. Vehicles priced over that amount do not qualify for the credit.
  • Before 2023, manufacturer sales caps of 200,000 vehicles are in effect that may negate the new tax credit, including vehicles from Tesla, GM and Toyota. Please refer to the Department of Energy’s list or use their VIN number decoder for availability as this is subject to change. Beyond 2023, manufacturer sales caps are lifted.
  • The law sets a Modified Adjusted Gross Income (MAGI) limit of $150k for individuals, $300k married filing jointly and $225k head of household.6
  • Note that the $4,000 Pre Owned Electric Vehicle Tax Credit, for model years at least two years earlier than year of purchase, are subject to MAGI limit of $75k individual, $150k married filing jointly and $112.5k head of household.

Prior to purchase, please consult your accountant or CPA to double check eligibility, as some provisions may change.

IRA High Efficiency Home Rebates

The IRA also offers incentives designed to help homeowners pay for more environmentally friendly and energy efficient home technologies, including a variety of rebates:7

  • $8,000 for heat pumps
  • $1,750 for heat pump water heaters
  • $840 for a heat pump clothes dryer or electric stove
  • $4,000 for electrical panel upgrades
  • $2,500 for electrical wiring improvements
  • $1,600 for insulation and sealing
  • And more…

Beginning sometime in 2023, various point of sale rebates should come online once additional guidelines are released.

Limitations

  • The law sets a collectable maximum of $14,000 in high efficiency home rebates.
  • To be eligible for these rebates, household income cannot exceed 150% of area median income as calculated by HUD. Fannie Mae provides an area median income lookup tool, but please consult your accountant or CPA to double check eligibility.

IRA Residential Clean Energy Credit

A tax credit for installing clean household energy such as solar (PV panels, batteries, setup costs etc.), wind, or geothermal has been raised from 26% to 30% from 2022 to 2032 – independent of the prior $14k High Efficiency Home Rebate cap.7

Student Loan Forgiveness Plan

The cost of college has soared over the last few decades, with the average price of tuition, fees, and room and board for an undergraduate degree jumping 169% between 1980 and 2020.8 Over the same period of time, government investment in financial support for students has declined.9 Massive amounts of student loan debt is the result. The Department of Education now estimated that the average American undergraduate student now graduates with nearly $25,000 in student loan debt. Those debts have a disproportionately high negative impact on middle class and lower income families, particularly on people of color, which many experts point to as a cause of the widening racial wealth gap in this country.10

To respond to this growing crisis, President Biden, Vice President Harris, and The Department of Education introduced a Student Loan Forgiveness Plan this August designed to provide relief to low and middle income federal student loan borrowers.11 This plan may yet be challenged at the Supreme Court, but currently it includes:

  • $10k of student loan forgiveness, plus an additional $10k if Pell Grants are held, if income was under $125k for individuals or $250k Married Filing Jointly/Head of Household for either years 2020 or 2021. Parents with PLUS loans are also eligible, subject to income limits.
  • The Federal student loan repayment freeze was extended until the end of 2022.
  • Monthly payments for income driven repayment plans were cut to 5% of a borrower’s discretionary income – down from 10% of discretionary income.
  • Monthly payments for graduate loans will be capped at 10% of discretionary income, down from 20%.
  • Balances will not increase as a result of accrued income as long as monthly payments are made on time.
  • Remaining balances will be totally forgiven after 20 years of payments or 10 years of payments if the balance is $12k or less.

Anyone who believes they are eligible should consult an accountant or tax professional for exact qualifications.

More Information Coming in 2023

We welcome these developments and we eagerly await additional information and guidelines. As 2023 approaches, these new policies will become more concrete and clear.

If you think you may benefit from the IRA or Student Loan Forgiveness plan, please consult your accountant/CPA, financial advisor, or wealth manager before taking any action.


Tim Kingsbury is a Wealth Manager and CERTIFIED FINANCIAL PLANNER™ professional. He is located in the New York office of Veris Wealth Partners and is focused on helping clients meet their financial and impact goals. Learn more.


The information above is provided for informational purposes only and reflects the views of the authors. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore.