OBBB Changes to the Advanced Manufacturing Production Credit

The One Big Beautiful Bill (OBBB) introduces significant restrictions on the availability of U.S. clean energy tax incentives for entities with connections to certain foreign countries. It also alters original phase out timelines.

The OBBBA’s impact on the Section 45X Advanced Manufacturing Production Credit:

• accelerates phase outs for certain eligible components,
• adds phaseouts and termination to the critical mineral component of the credit,
• expands the qualified critical minerals definition to include metallurgical coal,
• adds provisions on prohibited foreign entities (PFE), and
• modifies the sale of integrated components rules.

Accelerated Phaseouts and Terminations

Under the Inflation Reduction Act (IRA), eligible components sold after December 31, 2029, phased out. Under the OBBBA, those phase-outs remain largely the same, with the exception of solar and wind components which terminate for any component produced and sold after December 31, 2027. The phaseout for eligible components is determined by multiplying the credit amount by the phaseout percentage:

• Sale during calendar year 2030 – 75%
• Sale during calendar year 2031 – 50%
• Sale during calendar year 2032 – 25%
• Sale after December 31, 2032 – 0%

Further, the OBBBA adds new phaseout and termination rules for any applicable critical mineral (other than metallurgical coal) produced after December 31, 2030. The phaseouts for critical minerals are determined by multiplying the credit amount by the phaseout percentage:

• Production during calendar year 2031 – 75%
• Production during calendar year 2032 – 50%
• Production during calendar year 2033 – 25%
• Production after December 31, 2033 – 0%

The OBBBA also expanded the definition of critical minerals to include metallurgical coal. The credit attributable to metallurgical coal terminates for coal produced after December 31, 2029.

The new OBBBA phaseouts and termination dates are effective for taxable years beginning after July 4, 2025.

Prohibited Foreign Entity Restrictions

The OBBBA introduces new PFE provisions that are applicable to many tax credits. Effective for taxable years beginning after July 4, 2025, The PFE provisions disallow the Section 45X credit if the taxpayer received material assistance from a prohibited foreign entity or if the taxpayer is a specified foreign entity or a foreign-influenced entity.

Material assistance from a PFE exists when the material assistance cost ratio is less than the threshold percentage. Dive deeper with our article on PFE Restrictions to Energy Credits. The thresholds for eligible components are:

For critical minerals sold, the threshold is:

• After December 31, 2025, and before January 1, 2030 – 0%
• During calendar year 2030 – 25%
• During calendar year 2031 – 30%
• During calendar year 2032 – 40%
• After December 31, 2032 – 50%

Sale of Integrated Components

The OBBBA expands on Section 45X’s existing sale of integrated components provision. The new provision provides that a person will be treated as having sold an eligible component if that component (referred to as the primary component) is:

• Integrated, incorporated, or assembled into another eligible component (referred to as the secondary component.)
• Produced within the same manufacturing facility as the primary component.
• The secondary component is sold to an unrelated person.

Importantly, the OBBBA adds that the secondary component must have no less than 65% of the total direct material costs paid or incurred to produce it. Further, it must be attributable to primary components that are mined, produced, or manufactured in the U.S.

Next Steps

The new and expanded provisions are complex, with phaseouts varying by credit and eligible component. We can help you proactively review your energy credits and understand these new tax legislative impacts.