How to Utilize Clean Energy Tax Credits for Your Manufacturing Company
2022 gave us the Inflation Reduction Act (IRA) which provides valuable tax credits for companies that support clean energy manufacturing. Though the funding is limited, any eligible manufacturers can apply for this credit if they purchase property to re-equip, expand, or establish facilities in relation to clean energy. Most notably, the Act
- created the Advanced Manufacturing Production Tax Credit (45X MPTC), which offers an incentive for producing clean energy components, and
- expanded the Advanced Energy Project Investment Tax Credit (48C ITC) program
Of course, there are specific criteria to meet in order to take advantage of these changes. Additionally, it’s important to note that you can claim only one credit (not both), and both credits begin to phase out in 2032. Here’s a brief summary of each credit:
This credit is available to manufacturers that produce clean energy components in the USA; however, components produced at a facility that received a 48C ITC after August 2022 aren’t eligible. The credit varies by eligible component and is multiplied by the number of units produced and sold during the year.
Some of the components that qualify for the 45X MPTC include:
- photovoltaic modules (“solar panels”) as well as subcomponents
- tracking system components
- critical minerals
There are two ways to receive the tax credit: 1) “monetize” the credit through a direct payment from the IRS, and 2) elect to transfer the credit to an unrelated eligible taxpayer. Both of these options are subject to the 2033 credit sunset and any excess payments may be subject to a 20% penalty.
Initially established by the American Recovery and Reinvestment Act of 2009, this tax credit is a U.S. Dept. of Treasury program that awards tax credits for investing in eligible property. In general, these properties must be designed to produce or recycle advanced energy components, and the credit is applied as a percentage of eligible investment costs placed in service during the tax year.
Beginning in 2023, manufacturers can apply to claim a 48C ITC of 30% of their qualified investment if they satisfy the labor requirements issued by the Treasury Department relating to their manufacturing facilities. If a project doesn’t meet the labor requirements, the tax credit is limited to 6%. After a facility has been placed into service, the labor requirements no longer apply.
There are many other factors that the manufacturer must meet, including specific deadlines, in order to receive this tax credit, and like the 45X MPTC, a 20% penalty may apply if excess payments occur.
Choosing the Right Credit
Understanding which of the two credits is right for your manufacturing company is key to optimizing your strategic tax planning. There are benefits and parameters to both and we can help you make the best decision for your particular situation.
To learn more about how CJBS can help your manufacturing business, contact Jeff Stuart.