What the Inflation Reduction Act means for you

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President Joe Biden signed the Inflation Reduction Act in Aug. 2022. While the law’s name alludes to the Biden administration’s desire to bring down historically high price growth, analysts say its impact will be felt in domestic energy production, climate investments, and drug price reform. And the measures laid out in the law could save consumers thousands of dollars a year.

 

Because the new law could lower energy bills and provide tax and other incentives for consumers, it’s important to know what’s in the new law so you can take advantage of potential savings. Here is a rundown of the Inflation Reduction Act and how it could save you money.

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What Is the Inflation Reduction Act?

The Inflation Reduction Act of 2022, or the IRA for short, is a law intended to curb inflation by reducing the deficit, promoting domestic energy production, and lowering healthcare costs. President Joe Biden signed the IRA on Aug. 16, 2022.

 

The Biden administration and Congressional Democrats pushed to pass this legislation to tackle the highest levels of inflation the United States has experienced in more than 40 years. Additionally, the lawmakers wrote the law intending to combat climate change by investing in domestic energy production and carbon-reducing and green technologies.

 

Analysts estimate that the IRA will raise more than $700 billion in savings and revenue over 10 years through new taxes and tax and prescription drug pricing reform. This revenue will be raised, in part, through a 15% corporate minimum tax, a 1% stock buyback fee, and enhanced Internal Revenue Service (IRS) tax enforcement.

 

In contrast, the law will lead to more than $400 billion in new spending and tax cuts related to climate, energy, and healthcare initiatives. In all, the new law may reduce the federal budget deficit by about $300 billion over the next ten years.

 

Recommended: How to Protect Your Money During Inflation

Will the Inflation Reduction Act Reduce Inflation?

Experts believe the Inflation Reduction Act will have a negligible effect on bringing down inflation in the short term.

Inflation, which rose 8.5% annually in July 2022, is near the highest it has been since the early 1980s. The Federal Reserve started to raise interest rates in early 2022 to bring down prices, but it remains to be seen if the monetary policy moves will effectively curb inflation. Nonetheless, economists believe that short-term inflation reduction is the job of the Federal Reserve.

 

However, over the medium- to long-term, fiscal policy, like the Inflation Reduction Act, could reduce consumer costs. Specifically, analysts have said that the law’s measures to increase oil, gas, and clean energy production and lower prescription drug prices may bring down inflation over the next ten years.

How the Inflation Reduction Act May Save You Money

Proponents of the Inflation Reduction Act say that the law will cut consumers’ energy bills by $500 to $1,000 per year due to lower fuel prices, electricity rates, and more efficient energy consumption.

 

The law may also make it more affordable for consumers to purchase electric vehicles and deliver a range of tax incentives and rebates that provide direct, material benefits to consumers.

 

Because many of the Inflation Reduction Act’s consumer benefits come from rebates and tax credits, it’s best to talk with a financial and tax expert to understand how you may benefit from the law.

 

Recommended: A Guide to Understanding Your Taxes

Home Energy

The law extends a tax credit through 2032 for households and consumers who make energy-efficient home upgrades. Households can get up to $1,200, or 30% of the total cost, in tax credits for energy efficiency improvements like new doors, windows, or insulation. Additionally, households can get up to $2,000 in tax credits for installing efficient heating, cooling, and water heating equipment, such as a heat pump.

 

These credits take effect immediately; households can claim the credit for new purchases. Households can also claim these credits multiple times in subsequent years. For example, a household can claim the tax credit in both 2022 and 2023 if they buy and install new windows for a bedroom this year and new windows for a kitchen next year.

 

The Inflation Reduction Act also provides a 30% annual tax credit through 2032 — and phases down after 2032 — for households that install clean energy systems like solar energy, wind, geothermal heat pumps, fuel cells, and battery storage.

 

Recommended: Solar Panel Financing in 4 Ways

 

The law also sets aside $8 billion for a state-run program for low- and middle-income households that provide rebates for new, energy-efficient upgrades. These rebates are:

  • Up to $1,750 for a heat pump water heater
  • Up to $8,000 for a heat pump for heating or air conditioning
  • Up to $840 for an electric stove, cooktop, range, or oven; or an electric heat pump clothes dryer
  • Up to $4,000 for an electric breaker box upgrade
  • Up to $1,600 for insulation, air sealing, and ventilation
  • Up to $2,500 for electric writing

These rebates may be available to buyers who make 80% or less than the area median income (AMI), while buyers who make up to 150% of the AMI may see a smaller benefit. Eligible households or individuals may not receive more than $14,000 in rebates.

Electric Vehicles

The Inflation Reduction Act provides a tax incentive for purchasing new and pre-owned clean vehicles, like electric vehicles (EVs) or hydrogen fuel cell cars, and for supporting equipment. The tax credits for clean vehicles are:

  • Up to $7,500 for a new clean vehicle
  • Up to $4,000 for a pre-owned vehicle

However, restrictions on what kinds of clean vehicles are eligible for the tax credit may limit how the incentive benefits consumers. The vehicles must meet specific criteria to qualify for the tax credit, such as:

  • Vehicles must be assembled in North America
  • A certain percentage of a battery’s components must be mined or produced in the United States or a country with a free trade deal with the U.S.
  • The MSRP of a pickup or SUV must not be over $80,000; other personal vehicles must not exceed $55,000

Additionally, to qualify for the tax credit, the income of the buyer of a clean vehicle must not exceed $150,000 if single, $225,000 if the head of a household, or $300,000 if married.

Healthcare

The Inflation Reduction Act is expected to provide benefits to individuals with health insurance coverage under Medicare.

The law enacts prescription drug pricing reform, allowing Medicare to negotiate prices for some drugs starting in 2026.

 

This new measure may impact consumers who are prescribed one of the drugs with negotiated prices, resulting in lowered healthcare costs. Previously, Medicare was not allowed to negotiate drug prices.

 

Furthermore, the law caps insulin costs for people on Medicare at $35 per month starting in 2023. In 2025, out-of-pocket drug costs for Medicare beneficiaries will be capped at $2,000 per year.

The Takeaway

 

Since the Inflation Reduction Act is so new, the overall effects of the law are still unclear. But for now, consumers should be aware of the potential impacts of the law on their wallets. This is especially the case for individuals interested in making energy-efficient upgrades to their homes; the new law provides incentives that could lead to thousands of dollars in savings per year.

 

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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

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More from MediaFeed:

9 smart investments to hedge against inflation

 

It’s no secret that inflation has arrived and is here to stay. To protect yourself from the adverse effects of inflation, it’s essential to invest your money in smart ways.

 

 

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A few things can cause inflation, but the most common is when the government prints more money than there is demand for. Printing more money causes the value of each dollar to go down, and it becomes more expensive to buy goods and services.

 

CasPhotography/istock

 

Inflation can have a lot of adverse effects on the economy. When the value of money goes down, people tend to hold onto their cash instead of spending it.

 

Not spending money can lead to a decrease in demand, which can cause businesses to lay off workers or even go out of business.

 

 

Yingko/istock

 

Inflation can also affect asset values. A decrease in the value of money can lead to a decrease in the value of these assets. For example, when the value of money goes down, it can be more expensive to buy stocks and other investments.

 

 

marchmeena29 / istockphoto

 

There are a few things you can do to protect yourself from inflation. One is to invest your money in assets that will maintain their value over time. Another is to keep up with current events and make sure you know how inflation affects the economy. Finally, make sure you’re not taking on too much debt, as inflation affects this.

 

Here are nine investments that can help you protect your savings from inflation.

 

fotopoly/istock

 

TIPS, or Treasury Inflation-Protected Securities, are a type of bond issued by the U.S. government. The value of these bonds increases as inflation rises, so they can be a great way to protect your money from the harmful effects of inflation.

 

The downside of investing in TIPS is that they tend to have a low yield, so that you won’t earn a lot of money on your investment. However, the security of knowing your investment is protected from inflation makes them a wise choice for anyone looking to shield their money from rising prices.

 

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Bonds are another investment that can help you protect yourself from inflation.

Bonds can be a great way to make sure your money is safe and will maintain its value even if inflation rises. When you buy a bond, you’re lending money to a government or company in exchange for regular interest payments over a set period of time.

 

The downside of investing in bonds is that they can be risky if the company or government you’ve lent money to goes bankrupt. So, it’s essential to do your research before investing in bonds and know exactly to whom you’re lending money.

 

DepositPhotos.com

 

Gold is a popular investment during times of inflation, as it tends to hold its value even when the dollar falls. The preservation of its value makes gold an excellent option for anyone looking to protect their money from price fluctuations.

 

The downside of investing in gold is that it can be expensive, and there’s no guarantee that the price will go up over time. So, it’s essential to do your research before buying gold and make sure you’re comfortable with the risks involved.

 

DepositPhotos.com

 

Real estate is another asset that often performs well during times of inflation. When prices rise, people tend to invest in real estate to earn a higher return on their investment. The earning potential can make real estate a wise choice for anyone looking to shield their money from inflation.

 

The downside of investing in real estate is that it can be risky, and it can take a long time to see a return on your investment. So, it’s essential to do your research before buying property and make sure you’re comfortable with the risks involved.

 

DepositPhotos.com

 

Commodities are items like gold, silver, oil and wheat used as investments during times of inflation. They are used as investments because they tend to hold their value even when the dollar falls.

 

The downside of investing in commodities is that they can be volatile, and it’s difficult to predict how prices will change over time. So, it’s essential to do your research before buying commodities and make sure you’re comfortable with the risks involved.

 

NiseriN / iStock

 

Mutual funds are a type of investment that allows you to invest in various assets, including stocks, bonds, and commodities. Mutual funds can be a great way to spread your risk and protect your money from the adverse effects of inflation.

 

The downside of investing in mutual funds is that they can be expensive, and it can take a while to see a return on your investment. So, it’s essential to do your research before buying into a mutual fund and make sure you’re comfortable with the risks involved.

 

DepositPhotos.com

 

Stocks are another option for protecting yourself from inflation. When you buy stocks, you’re investing in shares of a company. Investing in these shares means that you become part-owner of the company and stand to earn dividends if the company does well.

 

The downside of investing in stocks is that they can be risky, and it’s difficult to predict how prices will change over time. So, it’s essential to do your research before buying into stock and make sure you’re comfortable with the risks involved.

 

Pinkypills / istockphoto

 

Silver is a type of commodity that often performs well during times of inflation. Silver performs well because it tends to hold its value even when the dollar falls.

 

The downside of investing in silver is that it can be volatile, and it’s difficult to predict how prices will change over time. So, it’s essential to do your research before buying into silver and make sure you’re comfortable with the risks involved.

 

alexis84 / istockphoto

 

Floating-rate bonds are a type of bond that has a variable interest rate. Having a variable interest rate means that the interest rate will change depending on how the economy is doing.

 

The upside of investing in floating-rate bonds is that they offer a higher return than regular bonds and are less risky than stocks or commodities.

 

The downside of investing in floating-rate bonds is that they can be volatile, and it’s difficult to predict how prices will change over time. So, it’s essential to do your research before buying into a floating-rate bond and make sure you’re comfortable with the risks involved.

 

JJ Gouin / istockphoto

 

Inflation can be a severe threat to your financial security. However, by investing in the right assets, you can protect yourself from its adverse effects. So, before you invest your money, make sure you understand how inflation can impact your portfolio and choose investments that will help you stay ahead of the curve.

 

This article originally appeared on MaxMyMoney.org and was syndicated by MediaFeed.org.

 

 

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Featured Image Credit: Yingko/istock.

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