The 45X Manufacturing Tax Credit: A Clean Energy Incentive Built for Manufacturers

Tax credits tied to production volume are rare in federal legislation, and Section 45X is one that stands out for manufacturers. Created under the Inflation Reduction Act, this advanced manufacturing production credit directly rewards U.S.-based manufacturers for producing components used in renewable energy systems. This incentive pays based on the number of eligible clean energy parts you manufacture and sell.

For qualifying manufacturers, this credit can offset millions of dollars in tax liability each year through consistent, production-based rewards. Whether your company produces battery cells, solar modules or wind turbine blades, understanding the 45X credit is essential for making informed financial decisions.

What is the 45X Manufacturing Tax Credit?

The Section 45X Advanced Manufacturing Production Credit provides tax relief to U.S. manufacturers producing specific clean energy components. It became effective in 2023 and will remain available through 2032, with a gradual phase-out beginning in 2030.

Rather than being tied to the cost of manufacturing or investment amounts, the 45X credit is based on output. For example:

• Battery cells earn a credit of $35 per kilowatt-hour (kWh) of capacity
• Modules using battery cells earn $10 per kWh
• Solar-grade polysilicon earns $3 per kilogram
• Wind turbine blades earn $0.02 per watt of rated capacity

The IRS defines these values clearly in IRS Notice 2023-59, published in August of 2023. It outlines eligible component definitions, verification standards and rules for calculating credits. The U.S. Department of Energy also provides a policy-level overview of how the credit supports domestic clean energy manufacturing. For companies that meet the criteria, the 45X credit can create significant year-over-year tax value.

Who Qualifies for the 45X Credit?

The 45X manufacturing tax credit is designed for companies that produce qualifying clean energy components. Unlike tax incentives focused on investment or installation, 45X specifically applies to the output of eligible products. This makes it a direct credit for manufacturers actively producing components in the clean energy supply chain.

Eligible businesses include those manufacturing:

• Solar photovoltaic (PV) cells, wafers, modules, and inverters
• Wind turbine blades, towers, and nacelles
• Battery cells and modules
• Electrode active materials
• Critical minerals, including lithium, graphite, cobalt, and nickel
• Structural components like torque tubes and thermal interface materials

To qualify, manufacturers must meet the following key requirements:

1. Production and sale must occur after Dec. 31, 2022.
2. Manufacturing must take place within the United States or U.S. territories.
3. Components must be sold to unrelated third parties.

In addition to these basic criteria, companies must be able to prove the physical production of goods, document each component’s eligibility and track inventory to align with IRS reporting requirements.

Many manufacturers already producing clean energy equipment could meet these conditions without significant structural changes. However, those exploring new product lines or considering U.S. facility expansions will need to analyze their component specs and production timelines carefully.

At James Moore, we help manufacturers assess whether their current operations align with 45X requirements and identify areas where documentation and compliance systems may need attention. For more information on how we support this process, visit our page on tax planning and consulting for manufacturers.

How the 45X Credit Works in Practice

Understanding how the 45X manufacturing tax credit operates is essential for integrating it into your tax planning strategy. The credit amount depends on the type and quantity of qualifying components produced and sold during the taxable year.

Let’s walk through a simplified example. A company that manufactures and sells lithium-ion battery cells in 2025 could claim a $35 per kilowatt-hour credit. If that company produces 100,000 kWh of battery cells during the year, the resulting credit would equal $3.5 million. This credit would directly reduce the company’s (or owner’s) federal income tax liability for that year.

Each type of component is assigned a fixed credit value. The IRS does not require cost-based substantiation for the credit, but the production must be accurately measured and verified.

Key operational details:

• The credit starts with components sold after Dec. 31, 2022
• It remains at full value through Dec. 31, 2029
• In 2030, credits reduce to 75% of the base amount
• In 2031, credits reduce to 50%
• In 2032, credits reduce to 25%
• The credit expires after Dec. 31, 2032

The IRS provides formal guidance on these reductions and implementation requirements in Notice 2023-59.

Because the credit is claimed on the production of each component, companies must invest in robust inventory tracking and internal controls. Verifying each qualifying unit, calculating eligible wattage or weight and documenting third-party sales are essential for substantiating claims under audit.

Businesses that operate in multiple sectors may find that some (but not all) production qualifies. For these companies, partial eligibility still creates planning opportunities. Your accounting team will need to segment reporting based on product lines and sales data to isolate qualifying units for the credit.

45X Credit in Action: Planning Considerations for Manufacturers

Claiming the 45X manufacturing tax credit involves more than producing eligible components. It requires strategic planning, precise documentation and coordination across finance, operations and compliance teams. Businesses looking to benefit from the credit should begin by aligning production tracking systems with the IRS reporting requirements.

First, manufacturers need to confirm the eligibility of their product lines. The IRS defines eligible components specifically and requires manufacturers to certify both production volume and component specifications. For example, a manufacturer producing solar modules must verify the wattage capacity of each unit and maintain proof of sales to unrelated parties.

Second, companies should evaluate how the 45X credit interacts with other clean energy tax incentives. A common example is the Section 48C Advanced Energy Project Credit, which offers an investment-based credit for facility development. A company may claim 45X on production from a facility that was supported by a 48C credit, but it cannot double-count the value of the same components under both programs. Understanding the coordination rules helps prevent unintentional compliance issues.

Third, timing matters. Since the credit begins phasing out in 2030, manufacturers planning facility expansions or equipment upgrades should prioritize operational readiness well before that date. Having eligible production on the line by or before 2029 ensures access to the full credit value.

To navigate these considerations effectively, manufacturers often need assistance with credit modeling, IRS documentation, and cross-program strategy. Our team supports these efforts with tailored planning for both current operations and future investments. Learn more about how we support manufacturers with year-round tax planning services.

Strategic Benefits: Why Manufacturers Should Act Now

The Section 45X credit provides a unique tax planning opportunity for U.S.-based manufacturers producing clean energy components. Beyond the financial benefit of claiming tax credits tied directly to production, there are larger strategic reasons for acting now.

Manufacturers who establish eligible production lines ahead of the 2030 phase-out schedule will be positioned to claim the full credit value for a longer period. Delaying implementation could reduce the credit by as much as 25% to 75%, depending on the year production begins. Companies that invest in new product lines, inventory systems and sales tracking now are more likely to fully capture available credits through 2029.

Another consideration is market positioning. As clean energy demand increases and federal supply chain targets evolve, manufacturers already producing qualifying components may be better aligned with both tax incentives and customer expectations. The U.S. Department of Energy and the Department of the Treasury have both emphasized the role of 45X in building domestic manufacturing capacity for renewable energy. A strong early presence in the market can support future project bids, capital investment decisions and government contracting opportunities.

Manufacturers should also be aware of administrative lead times. Projects that require new equipment, staffing, or facility upgrades can take several quarters to implement. Starting now allows companies to design their infrastructure and compliance systems with 45X in mind, avoiding rushed retrofitting later.

The Department of Energy has published finalized rules for Section 45X in cooperation with the Treasury and IRS to clarify eligible components, production requirements, and phase-out schedules. These rules offer guidance for manufacturers seeking to use the credit.

Clean Energy Manufacturing Tax Credits: What You Need to Know for 2025 and Beyond

The Section 45X manufacturing tax credit represents a substantial opportunity for clean energy manufacturers operating in the United States. By rewarding output rather than investment, this credit provides tax savings for every qualifying product sold. As the credit begins to phase out in 2030, companies producing eligible components should act now to maximize their benefit.

At James Moore, we work closely with manufacturers to assess eligibility, model credit potential, and support full compliance with IRS rules. Our goal is to help you make informed decisions that align with your financial strategy and operational goals.

Contact a James Moore professional to discuss how the 45X credit may impact your tax strategy and how we can support your compliance, planning, and documentation needs.

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