Critical Minerals Production Tax Incentive: 10% Rate and Phase-Out

The federal critical minerals production tax credit, found in Section 45X of the Internal Revenue Code, equals 10 percent of what you spend to produce any of more than 50 listed minerals in the United States. Congress created it in the Inflation Reduction Act of 2022, and the One Big Beautiful Bill Act of 2025 added foreign-entity restrictions, a phase-out schedule, and metallurgical coal to the list. If you are planning to claim the credit for 2026 or later, both sets of rules apply.

Which Minerals Qualify and at What Purity

A mineral only earns the credit once it reaches a specific form or purity level written into the statute. A few of the commercially significant thresholds:

Aluminum: converted from bauxite to at least 99 percent alumina by mass, or purified to at least 99.9 percent aluminum.
Cobalt: converted to cobalt sulfate or purified to at least 99.6 percent.
Graphite: purified to at least 99.9 percent graphitic carbon.
Lithium: converted to lithium carbonate or lithium hydroxide, or purified to at least 99.9 percent.
Nickel: converted to nickel sulfate or purified to at least 99 percent.
Germanium: converted to germanium tetrachloride or purified to at least 99.99 percent.

The full list also covers antimony, barite, beryllium, cerium, cesium, chromium, dysprosium, erbium, europium, fluorspar, gadolinium, hafnium, holmium, indium, iridium, lanthanum, lutetium, magnesium, manganese, neodymium, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and zirconium. Each has its own conversion or purity requirement spelled out in the statute.¹

Metallurgical coal is a special case. The OBBBA added it, but it earns only a 2.5 percent credit rather than 10 percent, and only for production before December 31, 2029.²

How the 10 Percent Is Calculated

The credit equals 10 percent of the costs you incur to produce each qualifying mineral.¹ Which costs count is where most of the work happens.

Under the final Treasury regulations, qualifying production costs include labor, electricity and other utilities used in production, storage, depreciation or amortization of production equipment, recycling costs, and general overhead tied to manufacturing. Extraction costs for raw materials mined in the United States or a U.S. territory also count, but only if you are the taxpayer who paid for the extraction.³

Direct and indirect material costs are excluded by default. The cost of purchasing raw ore, brine, or feedstock from a supplier does not go into your 10 percent base. You can include material costs if you attach supplier certifications to your return: each supplier must certify, under penalty of perjury, that it did not claim a 45X credit on the same material and is not aware of any prior supplier in the chain having done so. That prevents the same materials from generating credits twice.³

Recycled feedstock is on equal footing with virgin material. Treasury defines “secondary production” as producing an eligible component from recycled materials, and it receives the same treatment as primary production.⁴ Commodity-grade aluminum from secondary production is the one open question: Treasury reserved that provision for future guidance, so recyclers of aluminum should check the current regulatory status before claiming.³

Who Can Claim the Credit

Four conditions must all be met.

First, you must have produced the mineral. For critical minerals, production means processing, converting, refining, or purifying source materials such as ores, brines, or waste streams into a distinct eligible component. Mining raw material without further processing does not qualify.⁴

Second, all qualifying production must take place in the United States or a U.S. possession.⁵

Third, the mineral must be sold during the tax year in the ordinary course of your trade or business.

Fourth, the buyer must be unrelated. Related-party sales are not automatically out: you can sell to a related party that resells to an unrelated buyer, or you can make a related-party election that treats the related buyer as unrelated for credit purposes.⁶ The credit also applies when a qualifying mineral is integrated into another eligible component that is then sold to an unrelated person.

For tax years beginning after December 31, 2026, integration itself has new limits. If one eligible component is incorporated into another before sale, the credit for the incorporated component is allowed only when the final product is manufactured in the same facility and at least 65 percent of its direct material costs come from components mined, produced, or manufactured in the United States.²

Foreign Entity Restrictions for 2026

This is the largest new change. The OBBBA added prohibited foreign entity rules that deny the 45X credit to producers with certain ties to China, Russia, North Korea, or Iran. The restrictions apply to tax years beginning after July 4, 2025, so they are fully in effect for calendar-year taxpayers in 2026.²

A producer becomes a “foreign influenced entity” and loses eligibility if any of these thresholds are met:

A single entity from a covered nation owns 25 percent or more of the company’s stock.
Covered-nation entities collectively own 40 percent or more of the stock.
Covered-nation lenders hold 15 percent or more of the company’s total debt.
A covered-nation entity has authority to appoint a covered officer.

Contractual arrangements can also disqualify a producer. A licensing agreement with a covered-nation company lasting more than ten years, or payments under contracts that give covered-nation companies effective control, can each independently trigger disqualification. The credit is also denied when a producer receives “material assistance” from a prohibited foreign entity in connection with its production facility.⁷ Ownership tracing under these rules gets complicated quickly for companies with international investors, and it is an area where tax counsel earns its fee.

Phase-Out Schedule

The original Inflation Reduction Act put no expiration on the critical minerals credit. The OBBBA changed that. Critical minerals now follow this schedule:

Through 2030: full 10 percent credit.
2031: 75 percent of the normal credit amount.
2032: 50 percent.
2033: 25 percent.
2034 and later: no credit.

Metallurgical coal runs on its own faster clock and is eligible only for production before December 31, 2029.⁸

No Stacking with the 48C Credit

If any part of your production facility received the Section 48C advanced energy project credit after August 16, 2022, nothing produced at that facility qualifies for 45X. A single 48C credit claimed on any property that is part of the facility disqualifies all 45X production there.³ If you applied for a 48C allocation, check for overlap before you file for 45X.

How to File

You claim the credit on Form 7207, Advanced Manufacturing Production Credit, filed with your annual income tax return. Corporations attach it to Form 1120, and the credit flows through Form 3800 as a general business credit. Partnerships and S corporations file Form 7207 with Form 1065 or Form 1120-S and allocate credits to partners or shareholders.⁹

Critical minerals are reported in Part IV. You identify each mineral, enter production costs for the tax year, and apply the 10 percent rate. The Part IV total carries to line 6a.¹⁰ If you included material costs in the calculation, attach the supplier certifications.

Getting Paid If You Cannot Use the Credit

Two mechanisms let producers monetize the credit without offsetting their own tax.

Under Section 6417, certain tax-exempt entities and eligible taxpayers can elect to receive the credit as a direct cash payment. The IRS treats the elected amount as a tax payment, creating an overpayment that gets refunded.¹¹ Elective pay requires pre-registration through the IRS Energy Credits Online portal and a registration number for each credit property. Registration must happen at least 120 days before the extended due date of the return.¹²

Under Section 6418, producers who cannot use elective pay can sell all or part of their credits to a third-party buyer for cash. The buyer and seller negotiate pricing, and the transfer is documented with an election statement filed with the tax return. Cash received from selling credits is not included in gross income, and the buyer cannot deduct the purchase price.¹³ Transfers use the same portal and the same 120-day pre-registration timeline.

Records to Keep

The IRS expects batch-level documentation. At a minimum:

Certificates of analysis confirming each batch meets the statutory purity or conversion threshold.
A breakdown of the labor, utilities, depreciation, overhead, and extraction costs included in your 10 percent calculation, plus the supplier certifications if you included material costs.
A material eligibility analysis performed at the time you acquired the constituent materials, confirming they did not already meet the definition of an eligible component before your production process began.
Contracts and invoices showing sales to unrelated parties, or documentation supporting any related-party election.
Production logs with volume and date records for each mineral at each facility.

Keep these for at least three to five years to cover the standard audit window. The final regulations specifically require the material eligibility analysis and the material cost lists to live in your books and records, not just on the return.³

1
Office of the Law Revision Counsel. 26 USC 45X – Advanced Manufacturing Production Credit
2
Akin Gump. Significant Cuts to IRA Clean Energy Tax Credits Included in Enacted Reconciliation Bill
3
Federal Register. Advanced Manufacturing Production Credit
4
Federal Register. Section 45X Advanced Manufacturing Production Credit
5
Office of the Law Revision Counsel. 26 US Code 45X
6
Internal Revenue Service. Advanced Manufacturing Production Credit
7
K&L Gates. Understanding the New Prohibited Foreign Entity Rules for Clean Energy Tax Credits
8
RSM US. Tax Bill Significantly Changes Clean Energy Credits and Incentives
9
Internal Revenue Service. About Form 7207, Advanced Manufacturing Production Credit
10
Internal Revenue Service. Instructions for Form 7207
11
Internal Revenue Service. Elective Pay and Transferability
12
Internal Revenue Service. Register for Elective Payment or Transfer of Credits
13
Office of the Law Revision Counsel. 26 USC 6418 – Transfer of Certain Credits