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Section 45X Advanced Manufacturing Production Tax Credit

 

What is the Section 45X Advanced Manufacturing Production Tax Credit?

The Inflation Reduction Act 2022 included the Section 45X tax credit for U.S. manufacturers that produce and sell eligible components.  Eligible components include solar energy components, wind energy components, inverters, certain battery components, and various critical minerals refined to certain purity standards.  This credit aims to incentivize the domestic production of components and critical minerals used in energy projects, strengthening the domestic supply chain.

WHAT TYPES OF COMPONENTS ARE ELIGIBLE FOR THE 45X CREDIT?

 

The specific types of components eligible for the 45X credits include:

 

    • Photovoltaic cells (thin film or crystalline)
    • Photovoltaic wafers
    • Solar grade polysilicon
    • Polymeric backsheets
    • Solar modules
    • Electrode active materials
    • Battery cells
    • Battery modules
    • Wind energy blades
    • Wind energy nacelles
    • Wind energy towers
    • Offshore wind energy foundations
    • Central inverters
    • Utility inverters
    • Commercial inverters
    • Residential inverters
    • Microinverters
    • Distributed wind inverters
    • Refined minerals

     

  • The sale of eligible components must have occurred after December 31, 2022, although production may have begun before that date.

  • How IS THE CREDIT CALCULATED?

     

    The credit rates differ based on the specific type of component produced and sold.  The credits will remain at their current rates until 2030 at which time they will step down 25% per year until they expire in 2033.

  • IN WHAT TAX YEAR IS THE CREDIT CLAIMED?

     

    The credit is claimed on the tax return for the tax year in which the eligible component was sold.

     

    aRE THERE RESTRICTIONS REGARDING THE PURCHASER OF THE COMPONENTS THAT IMPACT ELIGIBILITY FOR THE CREDIT?

     

    Yes.  The 45X credit requires that eligible components be sold to an “unrelated person”.  However, 45X does allow a taxpayer to make a specific election that would qualify the sale of eligible components to a related person if certain requirements are met.  Most notably, the eligible components need to be sold.  Transfers between entities would generally not be eligible for this election.  This election must be made annually and requires certain disclosures of information about the purchaser to be included with the credit claim.

 


  • what does “produced by the taxpayer” mean for the 45x credit?

     

    The production process undertaken by the taxpayer must “substantially transform” the input materials or subcomponents into a distinct eligible component.  Activities that involve minor assembly or superficial modification of a final eligible component are excluded from being considered “produced by the taxpayer”. An eligible component may also use either non-recycled or recycled input materials in the production of eligible components.

     

    It is important to note that while the production activities must occur within the U.S., the input materials and subcomponents used in the production of an eligible component need not be domestically produced.

     

    IS THE 45x CREDIT TRANSFERRABLE?

     

    Yes. The 45X Credit allows most taxpayers to sell their tax credits to an unrelated party in exchange for cash.

     

Contact us today to receive your free consultation and see if your business qualifies for the Section 45X Advanced Manufacturing Production Tax Credit.