Article
Final regulations for the advanced manufacturing investment credit
Key updates and impacts of the CHIPS Act on semiconductor manufacturing
Apr 11, 2025 · Authored by Jowan Abouhosah, Jiyoon Choi, Sasha Klein
The Treasury Department and the Internal Revenue Service (IRS) published final regulations on the advanced manufacturing investment credit under section 48D of the Internal Revenue Code on Oct. 23, 2024. These regulations provide eligibility requirements for the credit, a special 10-year credit recapture provision and more. The credit, established by the CHIPS and Science Act of 2022 (CHIPS Act), is a targeted initiative under the Inflation Reduction Act (IRA) to boost the U.S. manufacturing sector. Section 48D incentivizes investment in semiconductor manufacturing and associated equipment, fostering domestic production and reducing reliance on foreign supply chains. These final regulations affect taxpayers intending to claim a section 48D advanced manufacturing investment credit for property placed in service on or after the tax year ending Oct. 23, 2024.
Overview of the advanced manufacturing investment credit
The 48D credit provides a 25% tax credit for investments in constructing advanced manufacturing facilities focused on semiconductor manufacturing or related equipment. Eligible properties include those essential to manufacturing processes, such as fabrication equipment and cleanrooms, which must be tangible property where depreciation is allowed. In contrast, unrelated properties, like corporate office buildings, are generally ineligible. Construction must begin by Dec. 31, 2026, with the property placed in service after Dec. 31, 2022, to qualify. For properties that began construction before Jan. 1, 2023, the credit will only apply to the basis of the property attributable to construction, reconstruction or erection of the property after Aug.9, 2022 (date of CHIPS Act enactment). Additionally, coordination with section 47 prevents benefits overlap, allowing only non-rehabilitation-related expenses to qualify for the 48D credit.
Updates and reiterations addressed in the final regulations
One key clarification is the definition of “produced by the taxpayer.” The final regulations expand upon the proposed rules to include both primary and secondary activities, confirming that “assembly activities that result in a substantial transformation, such as combining constituent components into a new eligible component,” qualify for the credit. Further updates replace the term “mere assembly” with “minor assembly” to ensure comprehensive coverage of manufacturing materials.
The final regulations expand what counts as semiconductor manufacturing to include wafer production, fabrication and packaging. Wafer production covers processes like growing single-crystal ingots, slicing and cleaning. Packaging is now more inclusive, covering assembly, testing and advanced methods for protecting and connecting integrated circuits. They also clarify that manufacturing equipment includes specialized tools critical to production but explicitly excludes consumables like chemicals or gases from eligibility under section 48D.
The qualified property requirements also saw significant updates. The final rules affirm that “cleanrooms, specialized HVAC systems, and automated manufacturing equipment” are essential to production and qualify. The final rules explicitly exclude facilities used for non-manufacturing purposes, offering additional clarity by specifying certain types of buildings or sections within a facility that are deemed to be associated with manufacturing rather than categorized as office spaces. However, determining whether a particular building or its function serves administrative purposes or is unrelated to manufacturing ultimately depends on the specific circumstances. Section 50(b)(1)(A) emphasizes that property used predominantly outside of the U.S. is deemed ineligible for the investment credit.
Recapture provisions were also strengthened in the final regulations to safeguard against misuse in foreign countries of concern. The final regulations specify that the credit will be recaptured if an “applicable taxpayer” engages in a significant transaction that materially expands semiconductor manufacturing capacity in a foreign country of concern within 10 years of the credit-eligible property being placed in service. Recapture is triggered by material expansions, such as adding cleanrooms, if these expansions exceed 5% of manufacturing capacity. Transactions like mergers or joint ventures that involve foreign influence also fall under these provisions, aligning with U.S. national security objectives.
The final regulations contain a single project test that aligns with current IRS guidance related to investment tax credits. Specifically, multiple properties or facilities will be treated as a single project if they are owned by a single entity at any point during construction and meet at least two of the following factors described in reg. 1.48D-5(a)(3)(i), such as (i) the properties or facilities are constructed on contiguous pieces of land and (ii) the properties or facilities share a common electricity and/or water supply. Further, the final regulations clarify on-site and off-site activities, including examples to help taxpayers meet the physical work test. Finally, the final regulations state that a taxpayer meets the continuous efforts requirement by spending or incurring at least five percent of the total property cost in each calendar year after the year construction on the property started.
Recent actions post final section 48D regulations
During the last few months several developments and updates regarding the CHIPS Act have occurred outside of the 48D credits.
Funding awards
Since 2020, the advanced manufacturing investment credit and manufacturing grant incentives have catalyzed massive semiconductor industry growth in the U.S., with companies announcing over 100 projects across the nation, representing more than $500 billion in private investments. The Department of Commerce has announced $32.54 billion in grants and up to $5.85 billion in loans across 48 projects. In Nov. 2024, the Biden-Harris Administration finalized awarding Intel an investment of $7.86 billion in direct funding under the CHIPS Act to the company’s semiconductor manufacturing projects in Arizona, New Mexico, Ohio and Oregon, and Intel plans to claim the ITC for qualified investments exceeding $100 billion.
Trump aimed to end the CHIPS Act
Since President Trump has taken office, there have been expressed concerns about the CHIPS Act, describing it as unfavorable and requesting Congress reconsider its funding. While terminating the program would require legislative action, which some policy analysts note could face challenges due to the program’s economic benefits in states across the political spectrum, there have already been staffing reductions at the National Institute of Standards and Technology, the agency overseeing CHIPS fund distribution. Economic and industry specialists caution that the withdrawal of these previously allocated incentives could potentially impact semiconductor manufacturers’ financial planning and project timelines, with some suggesting possible legal challenges if committed funding is not fulfilled.
Establishment of U.S. Investment Accelerator
Following the President's earlier expressions of concern about the program during his March Congressional address, the Trump administration established a new entity called the Investment Accelerator to oversee the implementation of the CHIPS Act. This new body aims to streamline corporate investments while ensuring effective use of taxpayer funding, with specific objectives including regulatory streamlining, permitting acceleration, cross-agency coordination, enhancing access to national resources, facilitating laboratory collaborations and coordinating with state economic development organizations nationwide. The administration's approach reflects ongoing U.S. technology investment policy developments, coinciding with significant private sector commitments.
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The final regulations for the section 48D advanced manufacturing investment credit provide much-needed clarity on key definitions and requirements, shaping how semiconductor facilities are planned and designed. As new improvements and updates occur, this guidance marks a critical step in the U.S. government’s strategy to revitalize domestic semiconductor manufacturing and foster industry growth.
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What is the advanced manufacturing investment tax credit (section 48D)?
The advanced manufacturing investment tax credit (section 48D) provides a direct dollar-for-dollar tax reduction in hopes of boosting U.S. manufacturing, particularly in semiconductors and renewable energy, under the Inflation Reduction Act.
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