New Production Tax Credit Good News for Advanced Manufacturing (Section 45X)
Published on by Cole Dant, Lauren Huster, in Manufacturing, Tax Services
The Inflation Reduction Act (“IRA”) provided a new tax credit under Internal Revenue Code Section 45X, allowing certain manufacturers to qualify for a production tax credit for the domestic production and sale of eligible components.
On December 14, 2023, proposed regulations were issued to provide more insight into this new credit under IRC Section 45X. Manufacturers should review products being manufactured to see if there’s an opportunity to reduce their federal tax liability with this new credit.
Production tax credit eligibility
It likely won’t surprise you that many eligible components focus on energy efficiency. Here’s how eligible components for the new Section 45X tax credit are defined:
- Any solar energy component
- Any wind energy component
- Any inverter
- Any qualifying battery component OR
- Any applicable critical mineral
Timing and phase-out
The credit is available for eligible components produced and sold after December 31, 2022. There will be a phase-out of the credit for eligible components sold after December 31, 2029 – here’s what that looks like:
- 75% for components sold in calendar year 2030
- 50% for components sold in calendar year 2031
- 25% for components sold in calendar year 2032, and
- 0% for components sold in calendar year 2033 and after
Calculating the tax credit
The credit is calculated based on the amount of eligible components domestically produced and sold to an unrelated person in the normal course of business. The calculation can be based on the following options:
- Dollar value multiplied by the weight or size of the eligible component
- Dollar value multiplied by the total capacity of eligible component in watts OR
- Value as a percentage of production cost
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