2022 Inflation Act: Research Credit for Small Businesses + New Energy Efficient Home Credit

Preface: A man doesn’t need brilliance or genius, all he needs is energy. – Albert M. Greenfield

2022 Inflation Act: Research Credit for Small Businesses

In tax years beginning after 2015, certain qualified small businesses are allowed to claim a limited amount of the research credit against payroll taxes. Under the Inflation Reduction Act of 2022, in tax years beginning after 2022, the maximum amount of the credit against payroll taxes is increased from $250,000 to $500,000.

Taxpayers may be able to claim a credit for qualified research expenses. The research credit comprises three separately calculated credits: (1) the incremental research credit, (2) the credit for basic research payments to universities and other qualified organizations, and (3) the credit for energy consortium payments. A qualified small business may elect to apply a portion of its research credit against the social security tax imposed on an employer’s wage payments to employees.

A qualified small business must satisfy the following tests:

1. for the year of the election, the business’s gross receipts must be less than $5 million;
2. the business cannot have had gross receipts in any tax year preceding the five-tax-year period that ends with the tax year of the election; and
3. the business cannot be a tax-exempt organization

New Energy Efficient Home Credit

The Inflation Reduction Act of 2022 (2022 Inflation Act) extends the New Energy Efficient Home Credit through 2032, in addition to increasing and modifying energy-saving requirements effective for dwelling units acquired after December 31, 2022.

Extension of credit. The credit is extended for 11 years, through December 31, 2032.

Energy-saving requirements. The 2022 Inflation Act modifies the energy-saving requirements that must be met to qualify for the credit, including requirements for:

• single-family new homes;
• manufactured homes; and
• multifamily dwelling units.

Credit amounts. Additionally, the 2022 Inflation Act replaces the existing credit amounts with a $2,500 credit for new single-family homes that meet certain energy efficiency standards and a $5,000 credit for new single-family homes that are certified as zero-energy ready homes.

The credit for multifamily dwelling units is set at $500, or $1,000 for eligible multifamily units certified as zero-energy ready. Additionally, an enhanced bonus credit is available with respect to multifamily housing units if taxpayers satisfy prevailing wage requirements for the duration of the construction of such units. The bonus credit is equal to $2,500, or $5,000 for units that are certified as zero-energy ready.

Basis adjustment. Further, the 2022 Inflation Act clarifies that taxpayers claiming the credit do not have to reduce basis for purposes of calculating the low-income housing tax credit.

Please call our office and we can discuss how these tax laws might affect your individual tax situation.

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