2023 Specialty Tax Updates

[Julio Gonzalez]

There are some new tax laws in effect and others that are sunsetting, making our 2023 taxes look a bit different.

Inflation Reduction Act Updates

• 45L Energy-Efficient Home Tax Credit
  • The revisions to this tax credit also went into effect for 2023. The most dramatic change is the increase in the maximum available credit which went from $2,000 to $5,000 per unit. Although, this bonus rate is only achievable for those who meet the Zero Energy Ready Home Program.
  • For 45L tax credits claimed in 2023 and after, it will not reduce the adjusted basis of low-income housing tax credits (LIHTCs) which opens up even more tax incentives for low-income housing investors.
  • There are also prevailing wage requirements that were introduced for multifamily properties as a way to increase credit savings. The certification model has now shifted from IECC to Energy Star which eliminates the height limitation previously set on multifamily properties.
• 179D EPAct Tax Deduction
  • This adjustment is one of the most significant tax changes for 2023. These adjustments noted in the IRA include updated energy savings requirements and retrofit rules, new prevailing wage and apprenticeship standards and increased potential tax deductions for energy-efficient commercial properties. While this significantly increases the complexity of this tax deduction, it also has the potential to be more valuable than ever before.

Tax Cuts and Jobs Act (TCJA) Sunset Provisions

• 174 Expense Amortization Requirement
  • R&D tax credits overall are unaffected by the TCJA. However, there is an added amortization requirement for 174 expenses that will increase the length of time taxpayers will have to wait to receive the full value of their research and experimental expenditure write-offs. This will increase the complexity that may leave taxpayers deciding to alter their current tax strategy.
• Decreased Bonus Depreciation
  • TCJA previously allowed specific types of “qualified property” to be eligible for 100% bonus depreciation. For properties placed into service starting January 1, 2023, they will only be eligible for 80% bonus depreciation.

Increased IRS Funding

• The IRS will receive additional funding in 2023 for taxpayer services, IT improvements, tax law enforcement, as well as other miscellaneous operations. This heightening of tax law enforcement may lead to an increase in audit risk.

As these laws make taxes more complex, it’s crucial that your taxes are done correctly and you have the necessary supporting documentation on hand. As always, working with a tax professional is the best way to ensure compliance with the IRS rules and regulations.

What questions do you have about these changes to our tax laws?