Section 45X Advanced Manufacturing Credit

Cooper Norman sees more manufacturers asking about Section 45X every quarter, and most are surprised to learn that the credit is a direct cash lever rather than a deduction against income. Section 45X, added by the Inflation Reduction Act and refined by IRS guidance, pays U.S. producers a per-unit credit for eligible components sold to unrelated parties.

The credit is denominated in dollars per unit and stacks with other production incentives. For a Utah battery-component or solar-adjacent manufacturer, or an Idaho processor of qualifying critical minerals, that per-unit math can dwarf a comparable R&D credit. Here is what qualifies, how the credit is claimed, and how the phaseout schedule affects the timeline.

What Section 45X rewards

Section 45X pays a credit for eligible components produced by the taxpayer in the United States and sold to an unrelated person. The four families of eligible components are:

• Solar energy components (photovoltaic cells, wafers, modules, polymeric backsheets, torque tubes, structural fasteners)
• Wind energy components (blades, nacelles, towers, offshore wind foundations)
• Inverters, including central, utility, commercial, residential, and microinverters
• Electrode active materials, battery cells, and battery modules
• Applicable critical minerals

Each component has its own per-unit credit amount defined in the statute or by Treasury regulation. Battery cells, for example, are credited by kilowatt-hour of capacity, while solar modules are credited by watt of direct-current capacity.

Who claims the credit

The credit belongs to the producer. Two rules matter for that determination:

• The producer must manufacture the component in the United States or a U.S. territory.
• The component must be sold to a person unrelated to the producer. Related-party sales generally do not generate a credit unless a related-party election is made.

Contract manufacturing arrangements have their own rules under the Treasury regulations. Which party is treated as producing the component depends on who bears the economic risk and who directs the manufacturing activities, not just whose name is on the shipping paperwork.

Direct pay and credit transferability

Section 45X credits can be monetized in two ways beyond the traditional offset against tax liability:

• Direct pay. Tax-exempt entities, states, and certain other applicable entities can elect to receive the credit as a refundable payment.
• Transferability. Taxable manufacturers can sell all or part of a credit to an unrelated party for cash. The buyer applies the credit against its own tax liability.

Transferability changed the economics of the credit meaningfully. A profitable manufacturer with no immediate use for the credit can convert it to cash by finding a transferee, typically at a small discount to face value. Cooper Norman helps clients evaluate whether transfer or carryforward is the right move given projected tax liability.

Phaseout schedule and what it means for planning

Full-value credits are available through 2029 for most eligible components. The phaseout schedule then reduces the credit as follows:

• 75% of full credit for components sold in calendar year 2030
• 50% of full credit for components sold in calendar year 2031
• 25% of full credit for components sold in calendar year 2032
• Credit expires for components sold after December 31, 2032

Two exceptions matter. Wind components are no longer eligible for §45X credits generated after 2027. Critical minerals, originally exempt from the phaseout, are now subject to a staged phaseout from 2031 through 2034 under legislation enacted after the original IRA.

The practical read is that any capacity coming online in 2026 or 2027 captures the full credit for its earliest, highest-volume production years. Delays into 2030 leave real dollars on the table.

Documentation standards to prepare now

The IRS will require, at minimum, records that establish:

• The component produced, quantity, and technical specification
• The place of production, tied to the U.S.-manufactured requirement
• The identity of the purchaser and their unrelated-party status
• Bills of materials and process documentation supporting the component’s classification

Manufacturers pursuing transferability face additional documentation, including a required registration process with the IRS before a transfer election can be made.

For Idaho and Utah manufacturers building capacity in battery components, solar-adjacent parts, or applicable critical minerals, the credit is worth an intentional pass through the numbers before capital planning is finalized.

This overview is general information, not tax advice for your specific business. Talk with a Cooper Norman advisor about how Section 45X fits with your production timeline and tax planning.