What is the advanced manufacturing investment tax credit (section 48D)?

The advanced manufacturing investment tax credit (section 48D) is a targeted initiative under the Inflation Reduction Act (IRA) to boost the U.S. manufacturing sector, particularly in critical areas such as semiconductors and renewable energy. Offering a direct dollar-for-dollar tax reduction, it provides a significant financial incentive over deductions, spurring investments in advanced manufacturing technologies. This credit underlines the government's focus on domestic manufacturing resurgence and supply chain security, with unique provisions for credit sale or transfer, enhancing its appeal and offering businesses strategic flexibility for growth and innovation in vital industries.

For the purposes of this overview, an advanced manufacturing facility is defined under proposed regulation section 1.48D-3(f) as a site primarily engaged in producing semiconductors or semiconductor manufacturing equipment. The facility's assets must be central to semiconductor production or the creation of equipment to manufacture semiconductors.

Financial incentives and immediate benefits

The advanced manufacturing investment credit offers a significant financial incentive to eligible taxpayers. For any given taxable year, the credit equals 25% of the qualified investment made towards an advanced manufacturing facility. This provision is designed to encourage substantial investment in the manufacturing of semiconductors and semiconductor manufacturing equipment as industries focus on innovation and economic growth.

Direct pay for section 48D is available and enables eligible taxpayers to receive a government payment equal to their advanced manufacturing investment credit, offering an immediate financial benefit regardless of their tax liability.

Eligibility

To qualify for the advanced manufacturing investment credit under section 48D, a taxpayer's investment must meet specific criteria. Firstly, the investment must involve "qualified property," which is tangible property integral to the operation of an advanced manufacturing facility. This property must be eligible for depreciation, ensuring it serves a long-term role in the facility's operations. Additionally, the property must be either constructed, reconstructed, or erected by the taxpayer, or acquired new, with its original use commencing with the taxpayer.

Risk associated with the section 48D credit