Critical Minerals in the Inflation Reduction Act: Rules and Credits

The Inflation Reduction Act treats critical minerals as the pivot point for two separate clean-energy tax breaks. On the consumer side, half of the $7,500 electric vehicle credit under Section 30D depends on where the minerals in the battery were extracted, processed, or recycled. On the producer side, Section 45X gives domestic mineral processors a tax credit worth 10 percent of their production costs. Both tracks run on the same statutory list of minerals, the same purity and conversion standards, and the same restrictions on materials tied to certain foreign governments.

What Counts as a Critical Mineral

Section 45X(c)(6) names more than 50 qualifying minerals and sets a specific benchmark for each. Most have two ways to qualify: conversion into a designated chemical compound, or purification to a minimum percentage by mass. Lithium qualifies when converted into lithium carbonate or lithium hydroxide, or when purified to at least 99.9 percent lithium by mass.¹ The statute requires the conversion itself, not a specific carbonate purity percentage that some earlier summaries have described.

The same dual structure runs through the list. Cobalt qualifies when converted to cobalt sulfate or purified to 99.6 percent cobalt by mass. Nickel must become nickel sulphate or reach 99 percent purity. Manganese qualifies as manganese sulphate or at 99.7 percent purity. Graphite has only one path: purification to 99.9 percent graphitic carbon.¹ The list extends well past battery metals to include aluminum, antimony, beryllium, chromium, dysprosium, europium, germanium, indium, and dozens more, each with its own conversion compound or purity floor.

Raw ore does not qualify. The mineral must go through refining, smelting, or chemical transformation that substantially changes it from its extracted state. Regulations also draw a line between the refined minerals themselves and “constituent materials,” which are the intermediate products such as cathode powders, anode powders, and electrolyte salts that feed directly into battery cells.² Processing converts an extracted mineral into a constituent material; recycling converts used material back into one. That chain matters because the EV credit traces value through each step.

The Mineral Half of the Clean Vehicle Credit

The Section 30D clean vehicle credit can reach $7,500, but the battery has to pass two independent tests. One half, worth $3,750, depends on battery components being manufactured or assembled in North America. The other $3,750 depends on a sufficient percentage of the value of the critical minerals in the battery being extracted, processed, or recycled in the United States or a country with a qualifying free trade agreement.³ Fail one test and you lose that half. Fail both and the credit drops to zero.

The critical mineral sourcing percentage rises each year on a statutory schedule:

2023: 40 percent of the value of applicable critical minerals
2024: 50 percent
2025: 60 percent
2026: 70 percent

The statute originally included a fifth tier requiring 80 percent for vehicles placed in service after 2026, but that clause was struck by Pub. L. 119-21.³ Seventy percent is now the highest statutory tier.

Even when both halves clear, buyers face separate eligibility gates. Manufacturer’s suggested retail price cannot exceed $80,000 for vans, SUVs, and pickup trucks, or $55,000 for other vehicles. Modified adjusted gross income must fall below $300,000 for joint filers, $225,000 for head-of-household filers, or $150,000 otherwise, measured against either the current or prior tax year, whichever is lower.⁴

How the Sourcing Percentage Is Calculated

Meeting the 70 percent threshold in 2026 is not as simple as buying minerals from a qualifying country. Treasury’s final regulations adopted a method called the Traced Qualifying Value test. Manufacturers must track the actual percentage of value added at each step of the supply chain, extraction, processing, and recycling, and determine how much of that value occurred in a qualifying location.⁵

For each mineral procurement chain, the manufacturer looks at the value added by extraction, processing, and recycling separately, then takes the highest qualifying percentage among those three activities. If 90 percent of the processing value for a nickel supply chain occurred in Australia but only 30 percent of the extraction value occurred in a qualifying country, the manufacturer uses the 90 percent figure. That percentage is multiplied by the total value of the mineral to yield its “traced qualifying value.” Add the traced qualifying values across all minerals in the battery, divide by the total value of all critical minerals, and the result must hit or exceed the applicable percentage for the year.⁵

A simpler transition method, the 50 percent value-added test, lets manufacturers count the full value of a mineral as qualifying if at least half the processing occurred in an eligible country. It remains available for periodic written reports submitted before January 1, 2027, and is being phased out in favor of the traced approach.⁵

Which Countries Qualify

Minerals count toward the sourcing threshold if extracted or processed in the United States or in a country with a free trade agreement in effect with the U.S. That includes Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore.⁶

Treasury also recognized narrower mineral-specific agreements. Japan has a critical minerals agreement with the United States that qualifies Japanese-processed minerals for Section 30D purposes, even though Japan has no comprehensive free trade agreement with the U.S.⁶ Recycling follows a stricter geographic rule and qualifies only when performed in North America.

Foreign Entity of Concern Restrictions

A vehicle can clear every sourcing percentage and still lose the entire $7,500 credit, not just the mineral half, if the battery has a disqualifying link to a Foreign Entity of Concern. The Infrastructure Investment and Jobs Act defines an FEOC as an entity owned by, controlled by, or subject to the jurisdiction of a covered nation, meaning China, Russia, North Korea, or Iran.⁷ The definition also reaches entities designated as foreign terrorist organizations, those on Treasury’s SDN sanctions list, and entities tied to espionage or export control violations.

Implementing regulations set a 25 percent ownership threshold. A company is an FEOC if a covered nation’s government holds at least 25 percent of its board seats, voting rights, or equity interest, whether directly or through subsidiaries.⁸

The FEOC rules rolled out in two phases. Starting in 2024, eligible vehicles could not contain battery components manufactured or assembled by an FEOC. Starting in 2025, the restriction expanded to cover critical minerals extracted, processed, or recycled by such entities.⁹

The 10 Percent Production Credit for Domestic Processors

The consumer credit gets most of the attention, but the supply-side incentive may carry more long-term weight. Section 45X gives mineral processors a tax credit equal to 10 percent of the costs they incur producing an applicable critical mineral.¹⁰ It is a business credit paid to the company doing the refining, smelting, or chemical conversion.

The credit covers primary production from newly extracted materials and secondary production from recycled feedstock. The processor must “substantially transform” the input into a complete and distinct eligible component; minor assembly or superficial changes do not count. The finished mineral must also be sold to an unrelated person, though the statute allows a deemed-sale exception when one company’s processed mineral is integrated into another eligible component that is ultimately sold externally. A related-person election lets vertically integrated companies claim the credit on internal transfers, subject to anti-abuse safeguards.¹⁰

Because the credit scales with production costs, it rewards higher-volume operations. A lithium hydroxide refinery spending $50 million a year on production earns a $5 million credit. That can be the margin between a domestic facility penciling out against cheaper foreign competitors.

No Phasedown for Minerals

Most Section 45X eligible components face a phasedown starting in 2030: the credit drops to 75 percent of full value that year, 50 percent in 2031, 25 percent in 2032, and zero after 2032. Applicable critical minerals are exempt from that phasedown.¹¹ The production credit for solar cells, battery cells, and other components ends after 2032, but the 10 percent credit for critical mineral processing continues indefinitely under current law.

How Processors Claim the Credit

Processors claim the credit by filing IRS Form 7207 with their tax return. A separate Form 7207 is required for each facility where eligible components are produced and sold. Tax-exempt entities making an elective payment election also file Form 3800 with their applicable income tax return.¹²

Companies planning to transfer the credit or receive a direct payment under Sections 6417 or 6418 must complete a pre-filing registration through the IRS portal for each manufacturing facility before the return is due. The IRS issues a registration number for each facility, which the return must include. For contract manufacturing arrangements, the parties must agree in writing before production is completed which entity will claim the credit.¹²

What Could Still Change

The IRA’s critical mineral provisions are not fixed. Pub. L. 119-21 already struck the 80 percent sourcing tier that would have applied after 2026.³ Broader proposals introduced in 2025 would phase out or repeal the Section 30D credit entirely for vehicles placed in service after December 31, 2025, with limited exceptions for smaller manufacturers. Anyone timing an EV purchase in 2026 should confirm the credit’s current status before relying on it. The Section 45X production credit for mineral processors has not faced the same repeal pressure, and its exemption from the general phasedown suggests domestic mineral refining has stronger political support than the consumer-facing side of the law.

1
Office of the Law Revision Counsel. 26 U.S. Code 45X – Advanced Manufacturing Production Credit
2
U.S. Department of the Treasury. Anticipated Direction of Forthcoming Proposed Guidance on Critical Mineral and Battery Component Value Calculations for the New Clean Vehicle Credit
3
Office of the Law Revision Counsel. 26 USC 30D – Clean Vehicle Credit
4
Department of Energy. Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Tax Credit
5
Federal Register. Clean Vehicle Credits Under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern
6
United States Trade Representative. Free Trade Agreements
7
Office of the Law Revision Counsel. 42 USC 18741 – Critical Materials Supply Chains and Partnerships
8
Department of Energy. Foreign Entity of Concern Interpretive Guidance
9
Department of Energy. 30D New Clean Vehicle Credit
10
Office of the Law Revision Counsel. 26 USC 45X – Advanced Manufacturing Production Credit
11
Federal Register. Advanced Manufacturing Production Credit
12
Internal Revenue Service. Instructions for Form 7207