Research | Policy Briefs
Inflation Reduction Act of 2022
45X
45X Advanced Manufacturing Production Credit
(IRA Section 13502)
Background
Section 13502 of the IRA inserts a new section 45X into the IRC, providing a tax credit for U.S.-made wind, solar, and battery power components produced and sold after December 31, 2022, known as the Advanced Manufacturing Production Credit. (source)
What is it?
45X (IRA Section 13502) offers uncapped, variable tax credits for the domestic manufacturing of components for solar and wind energy, inverters, battery components, and critical minerals.
What types of projects/businesses are eligible?
Manufacturers of the following components are eligible for the tax credit. Credit amounts are as follows:
How do businesses take advantage of it?
The 45X tax credit for critical minerals is permanent from 2023. For other components, the full credit is available from 2023-2029 and phases down between 2030 and 2032. In order to receive the credit, businesses must file Form 7207 with their taxes. Tax-exempt organizations can receive the credit as direct pay, and all 45X tax credits are transferable.
Will the government be sending out future additional guidance?
The US Department of the Treasury announced in September 2023 that it would issue additional guidance on the 45X tax credit by the end of the year. Despite the highly detailed statutory text of the 45X credit, questions remain around the interpretation of key terms, including the definition of eligible components and considerations around the meaning of component ‘producer,’ especially in the context of contract manufacturing agreements.
Source: https://www.energy.gov/eere/solar/federal-tax-credits-solar-manufacturers
What other IRA incentives are available for clean energy projects?
There is some overlap in eligibility between the 45X PTC and 48C ITC, which offers tax credits for qualifying investments in ‘advanced energy projects.’ However, taxpayers cannot stack both tax credits for products produced in the same facility. Key factors that differentiate 48C from 45X are that it 1) requires a competitive application process and 2) is based on the cost to build (rather than costs after components are sold). While the benefits of the 48C credit are more immediate, the lifetime value of the 45X credit is typically higher (and also not limited to the initial federal government award, as is the case with 48C).
In addition to tax credits, certain IRA allocations—such as the $500 million to DOE for enhanced use of the Defense Production Act and $15.5 billion in funding and loans to retrofit automotive manufacturing facilities—provide additional incentives for clean energy technology and facilities. Funding opportunities offered through the Infrastructure Investment and Jobs Act (for battery materials processing) and CHIPS and Science Act (for semiconductor manufacturing) further complement tax credits and programs offered through the IRA.
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