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What is in the Inflation Reduction Act? Discounts, Credits and Price Limits

Just a few weeks ago, the Democrats’ signature domestic policy agenda was dead in the water. Now, a recovery bill focused on climate change and health care has passed the Senate and the House, and some people will begin to feel the effects next year.

The Inflationary Reduction Act (IRA), passed by Congress on Friday, will provide thousands of dollars in incentives for some homeowners to install energy-efficient electric stoves and better insulation. It artificially lowers the cost of installing solar on a home by increasing tax credits that expire at the end of the year.

And it may help some people buy electric cars — though limits apply.

A new bill expected to be signed by President Joe Biden soon has the big-picture goal of curbing global warming, but its effects are felt in homes across the country. As Washington tries to shift America toward a more energy-efficient future, the government is offering several tax incentives to people willing to make climate-friendly purchases.

The Inflation Reduction Act will lower health care costs for some people. Low- and middle-income Americans who use the insurance marketplaces created by the Affordable Care Act will see a subsidy on their insurance that is otherwise set to expire. And seniors on Medicaid will benefit from a new $2,000 cap on prescription drug prices.

The Grid breaks down how the legislation will affect everyday life — and how consumers can take advantage of the new law when spending their paychecks:

Tax breaks for drivers who buy electric cars

The bill includes a credit to help consumers buy an electric vehicle — but it comes with some important caveats.

Any individual up to $150,000 – or $300,000 for a married couple – can take advantage of a $7,500 credit for a new EV or a used version of up to $4,000. But the bill specifies that EV batteries must be sourced from trading partners in North America and the United States in certain amounts. These requirements are being phased in over time, but the Alliance for Automotive Innovation estimates that only 20 to 25 of the 72 EVs currently available will qualify. As sourcing requirements increase over the next few years, the alliance says none of the models will be eligible.

These specifications may push the industry to change its practices and rapidly reduce its reliance on Chinese materials and labor, but for now it seems to leave many consumers out of luck.

An even bigger tax credit for installing solar panels

While the bill would send billions of dollars to the production and large-scale installation of renewable energy, it also contains some related consumer provisions. Specifically, it would revive a dying tax credit for home solar power installations.

Under current law, homeowners can receive a 26 percent tax credit for solar power systems installed between 2020 and 2022. That credit was due to drop to 22 percent for systems installed next year, and it will expire entirely by 2024. The IRA kicks it back up to 30 percent for systems set up this year until 2032, when it drops back to 26 percent.

Rooftop solar installations run somewhere between $15,000 and $25,000, so shaving $4,500 to $7,500 off your taxable income is nothing to sneeze at.

Discounts on energy-efficient appliances

There’s a lot in the IRA to help people improve the energy efficiency of their homes. Exact rebate amounts vary based on an individual’s income compared to the median area income, but consumers are said to be in the thousands of potential dollars through a portion of the bill known as the Homes Rebate Program.

Eligible items include upgrades for water heaters (up to $1,750), heat pumps for space heating and cooling (up to $8,000), electric stoves or ovens or electric heat-pump clothes dryers (up to $840), circuit breaker boxes (up to $4,000), insulation and ventilation. Improvements (up to $1,600) and improvements to wiring (up to $2,500).

In total, customers can take as many of these rebates as they want, up to a total of $14,000.

And more rebates, for homeowners who reduce whole-house energy consumption

Apart from equipment-specific types of rebates, the bill offers a more general approach. A retrofit that reduces a home’s energy use by 35 percent through insulation or other improvements is eligible for a rebate of up to $8,000 or 80 percent of the project cost, whichever is less. For smaller improvements in energy use, that number goes down — for projects that perform between 20 and 35 percent, for example, the benefit is limited to $4,000.

Extensions to insurance subsidies in the market

In 2021, Congress passed new subsidies aimed at low- and moderate-income Americans who buy insurance in the marketplaces created by the Affordable Care Act — but those subsidies are set to expire at the end of this year. The new law extends those subsidies to three years.

This helps keep more people insured and keeps premiums low, with people buying insurance on the marketplace as opposed to employer-sponsored health care plans. After Congress added new subsidies in 2021, a record number of people signed up for health insurance through the marketplace and premiums fell 19 percent between 2021 and 2022, according to the Department of Health and Human Services. An estimated 3.1 million people would lose their health plans if Congress ended the subsidies, according to an Urban Institute analysis.

New caps on prescription drug prices for seniors

Seniors and others using Medicare would see out-of-pocket costs for drugs capped at $2,000 per year under the new bill. The bill also caps the cost of insulin — which has risen in recent years — at $35 a month for Medicare recipients.

These provisions are part of a broader effort to save the federal government money by allowing Medicare to negotiate the prices of certain prescription drugs. Most of these changes will take place over time, starting in 2025 and 2026, although the cap on insulin prices will go into effect next year.

Thanks to Lillian Barkley who copied this article.

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