Final regulations for the advanced manufacturing investment credit

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.