Final Regulations Clarify Requirements for the Advanced Manufacturing Production Credit

The Inflation Reduction Act of 2022 introduced the Section 45X advanced manufacturing production tax credit to bolster domestic manufacturing of critical components used in energy production. Eligible components include certain components for solar and wind energy, inverters, battery components, and 50 identified critical minerals. Manufacturers may sell Section 45X credits to third parties in exchange for cash, or, for a period of five years, may elect to receive a direct payment from the IRS equal to the credit amount, pursuant to new rules also introduced by the Inflation Reduction Act.

The final regulations, which were released on October 24, 2024, and take effect on December 27, 2024, clarify, among other things, the following:

• Recycled Materials. Eligible components may now be produced from recycled materials, not only primary materials. 
• Assembly. The IRS clarified that the regulations are not intended to exclude production where "assembly" is the primary activity that produces eligible components (like production of solar modules), but the final regulations exclude "minor assembly" (rather than "mere assembly," which was the term used in the proposed regulations).
• Extraction Costs. The regulations clarify that certain material costs (including extraction costs) for eligible critical minerals, if paid by the taxpayer claiming the credit, may now be included in the taxpayer's credit base.
• Effective Date. The regulations confirm Section 45X requires all production and sales of eligible components be completed after December 31, 2022; however, production of eligible components may begin before December 31, 2022.
• Overlap with Section 48C Credit. Taxpayers may claim both the Section 45X credit and the Section 48C credit (the qualifying advanced energy project credit) if they are for separate facilities.
• Solar Wafers. Domestic solar wafer production is now included under both the Section 45X credit and the 48D credit (the advanced manufacturing investment credit), pursuant to the final regulations released on October 22, 2024, regarding Section 48D. This means that facilities producing solar wafers may be eligible for the 25% investment tax credit under Section 48D.

The final regulations provide clarity and flexibility to manufacturers in the clean energy industry hoping to qualify for the advanced manufacturing production credit by better addressing the variety of technical production processes covered under Section 45X.