48D semiconductor tax credit

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act allocates $50 billion for programs that strengthen and revitalize the U.S. position in semiconductor research, development, and manufacturing—while also investing in American workers. While the U.S. remains a global leader in semiconductor design and research and development, it has fallen behind in manufacturing and now accounts for only about 10 percent of global commercial production. Today, none of the most advanced logic and memory chips—the chips that power PCs, smartphones, and supercomputers—are manufactured at commercial scale in the United States. CHIPS Act programs will address these gaps. 

The advanced manufacturing investment tax credit (48D credit) is a targeted initiative under the CHIPS Act to boost the U.S. manufacturing sector. This tax credit underscores the Biden-Harris Administration’s focus on strengthening the domestic manufacturing sector and ensuring supply chain security. To incentivize investment in advanced manufacturing technologies, the credit offers businesses a direct dollar-for-dollar reduction in tax liability.  Additional provisions permit the sale or transfer of credits to enable businesses to monetize credits to finance growth.

The advanced manufacturing investment credit offers a significant financial incentive to eligible taxpayers. For any taxable year, the credit equals 25% of the qualified investment. This provision is designed to encourage substantial investment in semiconductor manufacturing.

Direct pay is available. This helps eligible taxpayers receive a government payment equal to their 48D credit. This applies if the taxpayer cannot use the credit to offset tax liabilities.

An advanced manufacturing facility is defined under proposed regulation section 1.48D- 4(b) as a facility of an eligible taxpayer that either makes:

• primarily semiconductors 
• semiconductor manufacturing equipment  

The facility’s assets must be predominantly committed to either of the above purposes.   

To qualify for the 48D credit, a taxpayer's investment must meet specific criteria. First, the investment must involve "qualified property." This is defined as physical property integral to the operation of an advanced manufacturing facility. This property must be eligible for depreciation or amortization. 

The property must be placed into service after 2022, and construction on planned property must begin before Jan. 1, 2027, to qualify.

Interested small manufacturers may consider making qualified investments in their advanced manufacturing facility any time from Dec 31, 2022 – Jan 1, 2027. The credit can be claimed on the next tax filing after the eligible property is placed in service.