Proposed Credits & Deductions in the Upcoming Infrastructure & Broader Spending Plan

In the last post, I covered the potential “pay-fors” that would… well… pay for some of the spending, deductions, and credits enabled by the proposed infrastructure and broader spending legislation that Congress is working on passing via reconciliation this fall.  That proposed legislation is currently 645 pages, and subject to many changes as it makes its way through committees in both chambers.  There are many proposed changes to the tax code (enough to make the TCJA look simple) to go along with various spending appropriations.  The majority have to do with infrastructure incentives and credits for business.  But, there are a few notable ones for individuals/families.  Keeping in mind that this is just a proposal, here is a non-exhaustive list of the provisions that may provide some benefit to you:

  • Increases the credit for adding solar to a residence back to 30% of the cost.  Extended through 2031, then phases down to 26% in 2032, 22% in 2033, and then expires.  Includes residential battery storage technology as well.
  • Extends the non-business energy property credit (energy-efficient windows, doors, furnaces, , water heaters, etc.) to 2031 and expands the credit to 30% of the cost from the current 10%.  Additionally, it eliminates the (frustrating and hard to track) lifetime limit and replaces it with a $1200 annual limit.
  • Creates a new Plug-In Electric Vehicle Credit ranging from $4000 to $12,500 (limited to 50% of the cost), depending on battery capacity, assembly location, and what portion of the vehicle is made with domestic parts.  It won’t apply to vehicles weighing more than 14,000 lbs or vehicles with an MSRP exceeding certain thresholds. The credit phases out starting at income of $400K single / $800K Joint.
  • Creates a new Plug-In Electric Vehicle Credit for purchase of used qualifying vehicles.  Much lower income thresholds, lower credit amount, and the vehicle must be at least 2 years old.
  • Creates a new credit for certain electric bicycles, and reinstates the employer provided fringe benefit for bicycle commuting (with the max benefit raised to $52.50/mo from $20/mo)
  • Extends the enhanced Child Tax Credit ($3k per child age 6-17, $3600 per child age 5 or under), as created by the American Rescue Plan (ARPA) earlier in 2021, including monthly checks of half of the expected amount of the credit, through 2025 (previously expired in 2021).  However, instead of defaulting to including the monthly checks, the default will be to not have monthly checks sent and the taxpayer will have to opt in in some manner to be determined at a later date by the Treasury/IRS.  Income phaseouts continue to apply as defined in ARPA (phaseout for the original $2k is $200K Single / $400K Married, and for the enhanced $1600 it’s $75K Single / $150K Married.
  • Makes the Child Tax Credit permanently (until changed by future legislation) refundable.  This means the credit amount can exceed the taxpayer’s total tax liability for the year and the taxpayer will still get the full credit.  No longer reverts back to the pre-ARPA rules after 2025
  • Extends the $500 credit for “Other Dependents” through 2025.
  • Makes the Dependent Care Credit changes from APRA permanent.  That increased the maximum qualifying expenses to $8K for one child or $16K for two or more children.  The amount of the credit starts at 50% of qualifying expenses.  If income exceeds $125K, the credit percentage is reduced, until it drops to 20% at $400K.  It then completely phases out if income exceeds $500K.  Also makes permanent the income exclusion for employer provided Dependent Care Assistance (e.g. Dependent Care Flexible Spending Accounts) at the ARPA enhanced level of $10,500 per year (up from the $5k limit pre-ARPA).  Note that employers still need to adopt this change in order for employees to take advantage of it.
  • Creates a new credit for caregivers of 50% of qualified expenses up to a $4K maximum credit.  Begins to phase-out at $75K of income.  This is for people who care for those with long-term care needs in their own home.
  • Enhances the Earned Income Credit.
  • Creates a new credit for contributions to a Public University that provide infrastructure for research.  The credit, available through 2032, is 40% of the amount contributed to the qualifying project (lots of rules as to what qualifies).  Note: this is a credit, not a deduction, so you don’t have to itemize to take it.

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