The Inflation Reduction Act and Student Loan Forgiveness. How They Might Impact Your Finances
The recent news about President Biden’s student loan forgiveness plan and the passage of the Inflation Reduction Act of 2022 are good reminders about the importance of staying updated on government policies that may affect your bottom line. With a better understanding of these trends, you can make informed decisions about your future, whether you're just starting in the workforce or considering retirement.
What The Inflation Reduction Act of 2022 Means for You
The Inflation Reduction Act was signed into law on Tuesday, August 16. While the $430 billion package includes many provisions, there are three key areas where you may benefit the most. They are:
1. Tax credits for energy-related home improvements: Beginning in 2023, the bill includes a 30% tax credit for installing energy-efficient windows, heat pumps, or newer appliances. The annual limits for qualifying improvements will be:
- $150 for home energy audits
- $250 for any exterior door that meets applicable Energy Star requirements
- $600 for exterior windows and skylights that meet Energy Star Most Efficient certification requirements
- $600 for central air conditioners, electric panels, natural gas, propane or oil water heaters, oil furnaces, or water boilers
- $2,000 for heat pump and heat pump water heaters, biomass stoves, and boilers
There’s another tax credit for installing solar panels and up to $14,000 worth of rebates for upgrading to new, energy-efficient appliances.
2. Expanded EV tax credits: If you have an electric vehicle, you’re in luck. New tax credits are available immediately, with up to $4,000 offered for used EVs and up to $7,500 for new EVs. There’s also a tax credit for installing an electric charger in your home.
For new EVs, the tax credit income limit is $300,000 for married couples filing jointly, $225,000 for heads of household, and $150,000 for all other taxpayers. The vehicle’s retail price must be less than $55,000 for cars or $80,000 for SUVs and pickup trucks.
The tax credit income limit for used EVs is $150,000 for married couples filing jointly, $112,500 for heads of household, and $75,000 for all other taxpayers.
3. Prescription drug caps: Some changes don’t take effect right away. For example, insulin payments will be limited to $35 per month for Medicare Part D beneficiaries starting next year. In 2024, overall out-of-pocket drug costs will be limited to $4,000 annually, dropping to $2,000 in 2025.
New legislation can come with new benefits and complexities, so it’s essential to read the fine print and learn the plan's specifics to see how the changes might affect your financial situation.
Applying For Student Loan Debt Relief
The White House recently introduced a plan to forgive up to $20,000 to student loan borrowers as part of a larger debt forgiveness program implemented through an executive order. The program was designed to assist borrowers and families concerned about loan payments set to resume in January 2023.
The Department of Education estimates that one-time student debt relief will cost an average of $30 billion a year over the next ten years. There are still quite a few questions to be answered, but here are some key points.
- Pell vs. non-Pell: Loan forgiveness of up to $10,000 is available to non-Pell Grant recipients and up to $20,000 for Pell Grant recipients. Only Federal student loans can be forgiven. Loans held through a private lender are ineligible for this program.
- No Surplus: The amount of student loan forgiveness available depends on how much is still owed. If you only owe $8,000 in federal loans but qualify for $20,000 of relief, you will not receive the $12,000 surplus, just the $8,000 owed.
- Income Cap: Borrowers with pandemic-era salaries under $125,000 (for individuals) or under $250,000 (for married couples or heads of households) are eligible for relief.
- Loan Dates: Federal loans taken out after June 30, 2022, do not qualify for loan forgiveness.
- Application Process: Depending on your lender, you may already be approved and have your account credited by the end of the year. However, an application is expected to be released in the coming weeks, sometime before the student loan payment pause ends on December 31, 2022.
- Be Aware: Scams may pop up as more program details are released. Remember to practice caution and good business sense if someone contacts you about your student loans.
To receive the most up-to-date information about your student loans, ensure that your contact information is updated on StudentAid.gov. You'll have until Dec. 31, 2023, to submit your application.
How a Financial Advisor Can Help
In these quickly changing economic times, you can give yourself the best chance for success by educating yourself, seeking advice from licensed professionals, and taking all necessary precautions to ensure compliance with tax laws. Preparing today will help prepare you for the future.
This information is not intended to substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional.
Eric Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management, a financial advisory firm providing financial counsel and fiduciary investment services to individuals, families, and private foundations throughout the Traverse City and Northern Michigan region. He is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Retirement Planning Counselor™ with 25 years of experience. He also has a bachelor’s degree in finance from Hillsdale College. Braund is passionate about offering services rooted in hard facts and sound reasoning combined with meaningful, long-term relationships so that his clients can experience less stress and have more time and energy to invest in what they love.
Braund is a Northern Michigan native who truly enjoys all the area offers, including hiking, biking, swimming, skiing, volleyball, and boating. He loves spending time with his family — his wife, Jodi, and his two children — and maintaining a balanced life. To learn more about Eric Braund, connect with him on LinkedIn.
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