What Is the Section 48D Investment Credit?

The Advanced Manufacturing Investment Credit, established under Section 48D of the Internal Revenue Code, is a feature of the CHIPS and Science Act of 2022. Its purpose is to foster investment in the United States’ semiconductor industry. The legislation provides an incentive for the construction and equipping of facilities dedicated to manufacturing semiconductors or the specialized equipment required for their production.

This tax credit supports the growth of domestic manufacturing capabilities and enhances the security of the nation’s supply chain for these components. It encourages capital investment in a high-tech sector. The credit’s structure includes features that make it accessible to a broad range of businesses to stimulate economic activity and innovation.

Eligibility for the Advanced Manufacturing Investment Credit

To qualify for the Section 48D credit, a taxpayer must place qualified property into service as part of an advanced manufacturing facility. An eligible taxpayer can be any entity, including corporations, partnerships, and S corporations, that makes a qualifying investment.

An advanced manufacturing facility is defined as a facility whose main purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment. The facility’s core operations must be centered on the production of these specific items.

Qualified property must be tangible, subject to depreciation or amortization, and integral to the operation of the advanced manufacturing facility. This includes buildings, their structural components, and machinery and equipment directly used in the manufacturing process. The property must be either constructed, reconstructed, or erected by the taxpayer, or if acquired, its original use must begin with the taxpayer.

A timing element is that the property must be placed in service after December 31, 2022, and construction must have begun before January 1, 2027. The “placed-in-service” date is the point at which the property is ready and available for its specific use in a trade or business.

Calculating the Credit Amount

The credit is equal to 25% of the qualified investment made in an advanced manufacturing facility for the taxable year. This percentage is applied to the basis of the qualified property that is placed in service during that year.

The basis of qualified property refers to its cost, including the amounts paid to acquire and install the property. For property constructed by the taxpayer, the basis includes all costs incurred during the construction period.

The placed-in-service date determines the timing of the credit. A taxpayer calculates the credit for the tax year in which the eligible property becomes operational. For example, if a company spends two years constructing a facility and it becomes operational in the third year, the 25% credit is calculated on the total basis of the qualified property in that third year.

Special Provisions for Monetizing the Credit

Section 48D includes a provision that allows taxpayers to receive the value of the credit even if they have minimal or no tax liability. This is accomplished through an elective payment, often called “direct pay.” This mechanism allows an eligible taxpayer to treat the amount of the credit as a payment of tax, resulting in a direct cash refund from the IRS to the extent the credit exceeds the taxpayer’s tax liability. The direct pay option is available to any taxpayer claiming the Section 48D credit, not just tax-exempt entities.

This feature provides an immediate financial benefit, turning the tax credit into a source of direct funding. For companies making substantial investments in the capital-intensive semiconductor industry, this can improve cash flow and project financing. Final regulations for this provision clarify the process for taxpayers to access these funds.

The Process for Claiming the Credit

Claiming the Section 48D credit begins before the tax return is filed. For taxpayers intending to use the elective payment (direct pay) option, a mandatory pre-filing registration is required. This step must be completed electronically through a dedicated IRS online portal. This registration provides the IRS with advance notice of the expected credit to help prevent fraud and improper payments. Upon successful completion, the taxpayer receives a unique registration number for each qualified facility.

After completing any necessary pre-filing registration, the credit is claimed on the annual income tax return. The calculation of the credit is reported on Form 3468, Investment Credit. The amount from this form is then carried to Form 3800, General Business Credit.

If an election for direct pay was made, the registration number from the pre-filing process must be included on the tax return. This number is required for receiving a direct payment, and failure to include it will result in the rejection of the election.