IRA Domestic Content Guidance: Thresholds, Safe Harbor, and Filing

A clean energy project can earn a 10 percent domestic content bonus under the Inflation Reduction Act if all of its structural steel and iron is manufactured in the United States and a rising share of its manufactured-product costs is domestically sourced. The IRA domestic content bonus credit sits on top of the base Production Tax Credit or Investment Tax Credit, and Treasury has spelled out the qualifying rules in a series of IRS notices that developers must follow closely to keep the bonus through audit.¹

Which Credits and Projects Are Eligible

The bonus attaches to four provisions: the Production Tax Credit under Sections 45 and 45Y, and the Investment Tax Credit under Sections 48 and 48E.² In practice that means utility-scale solar, land-based and offshore wind, battery storage, hydropower, and other qualifying clean energy facilities. IRS Notice 2023-38 calls these “Applicable Projects” and includes a classification table listing specific project types.³

For the Production Tax Credit, qualifying adds 10 percent to the credit amount after all other adjustments.¹ For the Investment Tax Credit, the energy percentage increases by 10 percentage points when the project also meets prevailing wage and apprenticeship rules, or by 2 percentage points if it does not.⁴ Each qualified facility under Sections 45Y and 48E has to meet the domestic content requirements on its own; you cannot pool facilities together for the calculation.

The Steel and Iron Rule

Steel and iron face the strictest test. One hundred percent of the manufacturing processes for any steel or iron component must occur in the United States, with a narrow exception for the metallurgical refinement of steel additives.³ Mining raw ore abroad is fine. Once that ore becomes steel, every step from melting onward has to happen on U.S. soil. The statute ties the standard to 49 CFR Section 661.5, the existing Buy America framework used for federal transit projects.¹

One nuance saves a lot of trouble. Small steel or iron pieces incorporated into a larger manufactured product, such as nuts, bolts, screws, washers, clamps, and fittings, are treated as components of that product rather than as standalone structural steel or iron. They follow the more flexible manufactured-product rules.

The Manufactured Products Rule

Manufactured products are judged by cost share instead of all-or-nothing origin. A project meets the requirement when a specified percentage of its total manufactured-product costs is attributable to items mined, produced, or manufactured domestically. Notice 2023-38 calls this the Adjusted Percentage Rule.⁵

A manufactured product itself qualifies as domestic when all manufacturing processes for the finished product occur in the United States and all of its components are of U.S. origin. A component counts as U.S.-origin if it is manufactured here, regardless of where its sub-components come from.³ That last piece is the relief valve. A solar inverter assembled in the U.S. from domestically manufactured circuit boards counts as domestic even if the semiconductor chips on those boards were fabricated overseas.

Domestic Cost Percentage Thresholds by Year

The required domestic share rises on a fixed schedule tied to the year construction begins. For all projects except offshore wind:

2024 or earlier: 40 percent
2025: 45 percent
2026: 50 percent
2027 and later: 55 percent

Offshore wind climbs more gradually:

2024 or earlier: 20 percent
2025: 27.5 percent
2026: 35 percent
2027: 45 percent
2028 and later: 55 percent

The calculation divides the direct costs of domestic manufactured products and components by the total direct costs of all manufactured products in the project.³ The step from 40 percent to 50 percent for non-offshore projects starting in 2026 is significant, and sourcing decisions made during procurement determine whether the project clears the bar.

Why the Construction Start Date Drives Everything

The year construction begins fixes which threshold applies, so establishing that date correctly is central to the whole claim. The IRS recognizes two methods. A developer can show that physical work of a significant nature has started, such as actual site preparation or manufacturing of major components under a binding contract. Alternatively, the developer can meet the five percent safe harbor by incurring at least 5 percent of total project costs before the relevant deadline.⁶ Only one method needs to be satisfied.

A misclassified start date is where claims come apart during audit. A project that actually began in 2024 needs to meet 40 percent for manufactured products. Push that date into 2026 and the bar jumps to 50 percent. The documentation supporting your start date is worth as much attention as the sourcing documentation itself.

The Elective Safe Harbor

Gathering actual manufacturer cost data for every component in a utility-scale project is painful. Notice 2024-41 introduced an elective safe harbor that assigns pre-calculated cost percentages to common components.⁷ Instead of chasing proprietary cost breakdowns from suppliers, a developer uses the assigned values to test whether the project meets the required percentage.

Notice 2025-08 updated the safe harbor tables with revised cost percentages for solar photovoltaic systems, wind turbines, and other technologies.⁸ The tables break costs down to the component level. For a ground-mount tracking solar system, they assign specific percentages to PV cells, module frames, front glass, inverter circuit boards, torque tubes, and dozens of other parts. Add up the assigned percentages for every domestically sourced component and check the total against the threshold.

Using the safe harbor is optional. Electing it must be indicated on your domestic content certification statement. The trade-off: the safe harbor eliminates the data-gathering burden but locks you into the assigned percentages, which may be higher or lower than your actual costs for specific components.

How to Certify and File

The bonus is claimed on the annual return. The Investment Tax Credit goes on Form 3468. The Production Tax Credit goes on Form 8835.² Both require a domestic content certification statement attached the first year you report the bonus. Miss the attachment and you can lose the entire bonus.

The Form 3468 instructions specify what the statement must contain:⁹

Taxpayer name and taxpayer identification number as shown on the return.
A facility description, including owner information if different from the filer and the IRS-issued registration number if applicable.
A domestic production statement declaring that all steel, iron, or manufactured products that are components of the facility were produced in the United States under 49 CFR Section 661.
A statement indicating whether the taxpayer is electing to use the Notice 2024-41 safe harbor.
A perjury declaration signed by the taxpayer or an authorized representative.

The perjury declaration means the IRS treats false statements the same way it treats any fraudulent tax filing. Assembling manufacturer certifications and cost documentation during procurement, rather than at tax time, is the practical way to avoid problems.

Elective Pay and Transferability

Tax-exempt entities such as municipalities, tribal governments, and nonprofits can receive the bonus through elective pay (direct pay). These “applicable entities” face a wrinkle taxable developers do not: if the project fails domestic content, the credit itself is reduced through a phaseout.² For a taxable developer, missing the bar means losing the 10 percent bonus. For an elective pay recipient, it can shrink the base credit.

Two statutory exceptions can protect elective pay recipients. One applies when using U.S.-produced steel, iron, or manufactured products would raise total construction costs by more than 25 percent. The other applies when the relevant domestic products are not available in sufficient quantities or satisfactory quality.² Notice 2024-84 lets the IRS accept a simple attestation as proof that one of these exceptions is met for any project where construction begins before January 1, 2027, or the issuance of further guidance, whichever is later.¹⁰

Taxable developers can sell credits under Section 6418. One rule catches sellers off guard: the domestic content bonus cannot be transferred separately from the base credit. You transfer the full credit including the bonus, or none of it.¹¹ The transfer also requires pre-filing electronic registration with the IRS, and the transferee must receive the registration number and minimum documentation before closing.

Recapture and Recordkeeping

Investment tax credit property carries a five-year recapture period starting when the property is placed in service. Dispose of the property, change its use so it no longer qualifies, or reduce your ownership stake by more than one-third during that window, and the IRS can claw back some or all of the credit, including the domestic content bonus.⁹

Documentation should survive at least as long as the recapture window plus the statute of limitations on the return. Seven years after the credit is claimed is a reasonable floor. Keep manufacturer certifications, component cost breakdowns, and your domestic cost percentage calculations. If you elected the safe harbor, keep records showing which components you treated as domestic and the assigned percentages you relied on.

Not the Same as the Foreign Entity of Concern Rules

The domestic content bonus and the separate foreign entity of concern (FEOC) restrictions work differently and are easy to confuse. Domestic content looks at where components are manufactured. FEOC looks at who owns or controls the manufacturer. Missing domestic content costs you the 10 percent bonus. Failing FEOC compliance can disqualify a project from receiving any credit at all for certain activities beginning in 2026. A project can meet domestic content and still run afoul of FEOC if a component was manufactured in the U.S. by a company with prohibited foreign ownership or licensing arrangements. The two analyses draw on different records: bills of materials and cost percentages for domestic content, ownership structures and licensing agreements for FEOC.

1
Office of the Law Revision Counsel. 26 U.S. Code 45 – Electricity Produced From Certain Renewable Resources, Etc.
2
Internal Revenue Service. Domestic Content Bonus Credit
3
Internal Revenue Service. Notice 2023-38 – Domestic Content Bonus Credit Guidance Under Sections 45, 45Y, 48, and 48E
4
Office of the Law Revision Counsel. 26 U.S. Code 48 – Energy Credit
5
6
Internal Revenue Service. Notice 2013-29 – Beginning of Construction for Purposes of the Renewable Electricity Production Tax Credit and Energy Investment Tax Credit
7
Internal Revenue Service. Notice 2024-41 – Domestic Content Bonus Credit Amounts Under the Inflation Reduction Act of 2022
8
Internal Revenue Service. Notice 2025-08 – Domestic Content Bonus Credit Amounts Under the Inflation Reduction Act of 2022 – First Updated Elective Safe Harbor Modifying Notice 2024-41
9
Internal Revenue Service. 2025 Instructions for Form 3468
10
Internal Revenue Service. Notice 2024-84 – Domestic Content Bonus Credit Amounts Under the Inflation Reduction Act of 2022
11
Internal Revenue Service. Elective Pay and Transferability Frequently Asked Questions – Transferability