The Inflation Reduction Act of 2022 (IRA) created Section 45X‒the Advanced Manufacturing Production Credit of the Internal Revenue Code. The IRA is the most significant climate legislation in U.S. history‒offering funding, programs, and incentives to accelerate the transition to a clean energy economy‒and will likely drive significant deployment of new clean electricity resources.
The credit is available for businesses that produce components related to clean energy and sell to an unrelated person or company. Products must be produced in the United States. Eligible component categories include solar energy components, wind energy components, inverters, end-products suitable to convert direct current electricity from one or more solar modules, qualifying battery components, and applicable critical minerals.
The credit for each eligible component varies and can be calculated based on the value of the component size or weight, the value per electric capacity, or a percentage of the cost of production.
For example, eligible wind energy components include a blade, nacelle, tower, offshore wind foundation with fixed or floating platform, and offshore vessel. Among these components, the credit varies. The credit for an offshore wind vessel can be an amount equal to ten percent of the sales price of such vessel. However, for any other wind energy component, there will be various fixed amounts multiplied by the total rated capacity expressed on a per watt basis of the completed wind turbine for which the component is designed.
There are three ways a business can realize the benefit of the credit:
- The credit can be applied on a federal income tax return against a federal tax liability with any amount of the credit that exceeds a current tax liability eligible for carry forward to future years.
- A business can transfer or sell the credit.
- There is also a direct pay election for certain eligible entities to receive payment.
There is a phase-out of the credit for eligible components sold after December 31, 2029.
Section 45X is one of many credits and incentives created by The Inflation Reduction Act of 2022, and there can be many complex layers of calculations to reach the credit amount.
DiSanto, Priest & Co. can help you navigate the credit and incentive opportunities created by The Inflation Reduction Act of 2022. Call us at (401) 921-2000 or submit our contact form to get started.