The Advanced Manufacturing Production Credit (Section 45X), originally introduced by the Inflation Reduction Act of 2022, provides per-unit tax incentives to manufacturers producing and selling eligible clean energy components in the United States. With the recent passage of the One Big Beautiful Bill Act (OBBBA), key updates have altered the structure, eligibility, and future of this critical credit.
Who Can Claim the Credit
To qualify, manufacturers must produce eligible components in the U.S. or its possessions, substantially transform those components during manufacturing, and sell them either to an unrelated party or through a related-party election. Facilities that have claimed the Section 48C credit are ineligible for 45X. Components must be sold in the ordinary course of business within the same tax year.
Eligible Components and Rates
Section 45X covers solar components (cells, wafers, modules, backsheets), wind components (blades, nacelles, towers), inverters, battery cells and modules, electrode active materials, and critical minerals. Credit values vary by component type—for example, $35 per kWh for battery cells and $0.04 per watt for solar photovoltaic cells.
OBBBA Changes: Phaseouts and New Restrictions
OBBBA introduced several changes, most notably:
- Wind Component Elimination: All wind-related components produced and sold after December 31, 2027, are no longer eligible for the credit.
- Accelerated Phaseout: Clean energy component credits will phase down starting in 2030:
- 2030: 75%
- 2031: 50%
- 2032: 0% (originally 25%)
- Critical Minerals: Previously permanent, these credits now phase out between 2031 and 2034. However, metallurgical coal has been added as an eligible critical mineral, with eligibility expiring after 2029.
- Integration Rule Repealed: The ability to claim the credit for components integrated into a larger product sold to an unrelated buyer has been removed, requiring adjustments in assembly and sales strategies.
FEOC and Foreign Sourcing Restrictions
OBBBA imposes strict limits on credits tied to “foreign entities of concern” (FEOCs). Beginning after 2025:
- Components using materials, designs, or intellectual property from a FEOC are ineligible.
- Manufacturers classified as foreign-influenced entities may also be disqualified.
- Compliance requires strong supplier documentation and due diligence to avoid disallowed credits and related penalties.
Claiming and Transferring the Credit
Manufacturers claim the 45X credit using IRS Form 7207, along with Form 3800. They must register facilities through the IRA/CHIPS Pre-filing Registration Tool. Transferability remains intact under OBBBA—allowing credits to be sold for cash—though transfers to special purpose entities are now prohibited. Buyers must also comply with FEOC restrictions.
Compliance and Penalties
Taxpayers face steep penalties for noncompliance:
- A 20% penalty applies if disallowed 45X credits result in a 1% or greater income understatement.
- Misstatements in supplier certifications can result in penalties of at least $5,000 or 10% of the claimed credit.
Bottom Line
Section 45X remains a powerful tool for scaling U.S.-based clean energy manufacturing. However, with accelerated phaseouts, stricter eligibility rules, and heightened enforcement, manufacturers must take a proactive approach to planning, documentation, and compliance. Staying ahead of supply chain restrictions and regulatory deadlines is essential to capturing the remaining value of this credit. Contact your Stephano Slack tax manager or partner at 610-687-1600 or email taxinfo@StephanoSlack.com to discuss your situation.
Author Robert Radzinski, CPA, manager, oversees tax compliance for businesses and high-net-worth individuals. Rob can be contacted at 610-687-1600 or rradzinski@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
Recent Comments