Solar ingot and wafer manufacturing facilities and equipment in the U.S. will qualify for a 25% investment tax credit (ITC) under the final regulations for the Advanced Manufacturing Investment Credit, part of the CHIPS Act 2022 announced by the Department of Treasury and Internal Revenue Service (IRS).

Section 48D of the Internal Revenue Code provides a 25% tax credit on qualified investments in advanced manufacturing facilities. This credit is designed to encourage the domestic production of semiconductors, including the slicing, etching, and bonding of the semiconductor-grade polysilicon used in photovoltaic modules.

The credit applies to tangible depreciable property integral to an advanced manufacturing facility’s operation, placed in service after December 31, 2022, but excludes property whose construction begins after December 31, 2026. Taxpayers must not be foreign entities of concern and should avoid significant transactions that expand semiconductor manufacturing capacity in foreign countries of concern.

These regulations became effective retroactively from December 23, 2024.

Including solar ingots and wafers under this tax credit is expected to accelerate investments in domestic production capabilities for these components, addressing a significant gap in the U.S. domestic solar supply chain.

No ingot and wafer facilities are operational in the U.S., making this incentive crucial for fostering new developments.

A unique feature of these regulations is a 10-year recapture rule. If a taxpayer significantly expands semiconductor manufacturing capacity in a foreign country of concern within ten years of placing qualified property in service, they must pay back the credit.

This rule aims to prevent outsourcing critical manufacturing capabilities. The final regulations provide detailed definitions for key terms:

• Semiconductor: Defined as an integrated electronic device or system manufactured using silicon or silicon carbide materials.
• Semiconductor Manufacturing: Includes processes like wafer production, fabrication, and packaging but excludes precursor material production like polysilicon.

In June, the U.S. proposed new incentives under the Inflation Reduction Act by offering tax credits for electricity produced with low or zero greenhouse gas emissions, aligning financial assistance with environmental objectives. The Treasury and IRS detailed the regulations in sections 45Y and 48E of the Internal Revenue Code.

Last December, the Treasury and IRS introduced a new Section 45X that provides a credit for the production (within the U.S.) and sale of certain eligible components, including solar and wind energy components, inverters, qualifying battery components, and applicable critical minerals.