Summary of IRA Tax Credits for Ag and Clean Energy

On August 7th, the U.S. House of Representatives voted to pass the Inflation Reduction Act (IRA) of 2022. The bill is now expected to be signed into law by President Biden. Pinion advisors have provided a high-level summary of the key IRA tax credits takeaways specific to agriculture and clean energy.

Agriculture Funding

• Provides additional funding for environmental quality incentives, conservation assistance, quantifying carbon sequestration,
• Provides additional funding and assistance for rural renewable electricity projects
• Provides an additional $500 million for grants to expand the sale and use of biofuels, through infrastructure improvements for blending, storing, supplying, or distributing biofuels.
• Provides an additional $3 billion of funding for loan relief for financially distressed producers
• Provides $125 million for outreach and assistance for underserved farmers, ranchers, and foresters, including funding to help prevent land loss

Clean Energy Tax Credits

• Production tax credit: Extended for facilities whose construction begins before 1/1/25: Extends the production tax credit for renewable electricity for facilities whose construction begins before January 1, 2025. The credit calculation and amount changes depending on whether the facility’s production utilized apprenticeship programs and paid at least the “prevailing wage” for the industry. Adds a 10% bonus if materials were domestically produced.
• Energy credit extended:
  • 26% credit for facilities whose construction begins on or after January 1, 2020 and are placed in service before January 1, 2022
  • New credit calculation and phase-out amounts:
    • Base credit amounts:
      • 6%, if construction begins before January 1, 2033 and is placed in service on or after January 1, 2022
      • 2%, if construction begins during 2033
      • 4%, if construction begins during 2034
    • Additional credit amount: base credit is multiplied by 5 (maximum 30% credit) if the construction of the facility uses qualified apprenticeship programs and pays at least the “prevailing wage” for the industry
  • Geothermal heat pumps now eligible for the Investment Tax Credit through 2034 – previously only eligible for the production tax credit
  • Extends all existing incentives for biodiesel, renewable diesel, and alternative fuels through 2024, and creates a structure to allow claims for credits earned during the retroactive period (January 1, 2022 through passage of the Act)
  • Provides funding and incentives for making low-income housing energy-efficient or water-efficient
  • Provides additional funds to state and tribal energy offices to help increase residential energy efficiency for low- and moderate-income household.

General Tax Changes

• The only corporate tax “increase” comes in the form of a minimum tax assessed only on corporations with $1 billion or more in average annual financial statement income. The minimum tax is 15% of financial statement income.
• New excise tax on the repurchase of publicly-traded stock. Publicly-traded corporations will pay a 1% excise tax on the value of stock they repurchase, including repurchases of subsidiary stock.
• Individuals’ personal state and local tax deduction is limited to $10,000 through 2026
• Excess business loss limitation is extended through 2028
• Makes the R&D payroll credit available to more businesses – businesses less than 5 years old can apply $250,000 of their R&D credit against social security payroll taxes, and can now utilize an additional $250,000 credit against their Medicare tax liability, effective for taxable years beginning after December 31, 2022.

Click here for an overview of the IRA legislation and impacts for agribusinesses.

Contact a Pinion tax advisor with questions on eligibility for tax credits or help with tax strategy.

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