Section 45X Tax Credit: Eligibility, Phase-Out, and Claiming

The Section 45X tax credit is a federal production credit that pays U.S. manufacturers a set amount for each clean energy component they make in the United States and sell to an unrelated buyer. Created by the Inflation Reduction Act of 2022 and rewritten in places by the One Big Beautiful Bill Act in July 2025, it covers solar parts, wind equipment, inverters, battery cells and modules, processed critical minerals, and a few structural pieces like torque tubes and fasteners.¹ The credit is claimed per component produced, and the amount depends on what you make.

What Components Qualify and What They Pay

Section 45X treats each eligible component separately. A vertically integrated manufacturer that produces cells and then modules can claim on both stages, provided the finished item eventually reaches an unrelated buyer.

Solar

Photovoltaic cells: 4 cents per DC watt
Photovoltaic wafers: $12 per square meter
Solar-grade polysilicon: $3 per kilogram
Polymeric backsheets: 40 cents per square meter
Solar modules: 7 cents per DC watt

These rates are fixed by statute and do not adjust for inflation.¹

Wind

Blades: 2 cents per watt of total rated turbine capacity
Nacelles: 5 cents per watt
Towers: 3 cents per watt
Fixed offshore foundations: 2 cents per watt
Floating offshore foundations: 4 cents per watt
Related offshore wind vessels: 10 percent of the vessel’s sales price

Wind component credits calculate against the total rated capacity of the completed turbine the part is designed for, not the part itself.¹ All wind components lose eligibility after December 31, 2027.

Inverters

Rates range from 0.25 cents per AC watt for central inverters to 11 cents per AC watt for microinverters, with utility inverters at 1.5 cents and commercial inverters at 2 cents per watt. Each class is defined by its AC capacity and application; a central inverter, for example, must serve utility-scale systems above 1,000 kilowatts, while a microinverter tops out at 650 watts and connects to a single module.²

Battery Components

Battery cells: $35 per kilowatt-hour
Battery modules using cells: $10 per kilowatt-hour
Battery modules without cells (such as certain flow batteries): $45 per kilowatt-hour

The higher rate for cell-free modules reflects the fact that no separate cell-level credit is being claimed on that unit.¹

Critical Minerals and Electrode Active Materials

A long list of processed minerals qualifies, including lithium, cobalt, nickel, graphite, manganese, and more than a dozen rare earth elements. Each must be refined to a specified purity; lithium must be converted to lithium carbonate or lithium hydroxide, or purified to at least 99.9 percent by mass, and graphite must reach 99.9 percent graphitic carbon by mass.³ Both critical minerals and electrode active materials receive 10 percent of eligible production costs. Metallurgical coal, added by the 2025 amendments, qualifies at 2.5 percent.

Not every cost counts. Eligible costs include labor, electricity, storage, depreciation, recycling, and overhead. Raw material costs (direct and indirect), extraction and acquisition expenses, and any costs incurred after the material is produced are excluded.⁴ The credit targets the value added through refining and processing.

Structural and Tracker Components

Torque tubes used in solar tracking systems earn 87 cents per kilogram, and structural fasteners earn $2.28 per kilogram.¹ These are weight-based with no capacity testing.

What Counts as U.S. Production

Production must take place within the United States or a U.S. possession.⁵ The IRS regulations define “produced by the taxpayer” as a process that substantially transforms raw materials or subcomponents into a complete, functionally distinct eligible component. Minor assembly or superficial modification does not count.²

The regulations carve out a practical exception for solar modules and battery modules: combining cells into a finished module qualifies as production even though it might otherwise look like ordinary assembly. Both primary production from raw materials and secondary production from recycled materials can satisfy the requirement.

When the Credit Ends

This is where the 2025 amendments changed the picture. Different categories now follow different schedules.

Wind components. The credit for wind blades, nacelles, towers, foundations, and related offshore wind vessels ends entirely for components produced and sold after December 31, 2027.¹ There is no gradual phase-down. Manufacturers producing in 2026 and 2027 still receive the full rate.

Solar, battery, inverter, and structural components. These keep the original phase-out from the Inflation Reduction Act: 100 percent through 2029, then 75 percent in 2030, 50 percent in 2031, 25 percent in 2032, and nothing after that. For 2026 production, the full statutory rate applies with no reduction.¹

Critical minerals. Under the original law, minerals were exempt from any phase-out. The 2025 amendments changed that. All critical minerals other than metallurgical coal now step down on a slightly later schedule: 100 percent through 2030, 75 percent in 2031, 50 percent in 2032, 25 percent in 2033, and nothing after.

Metallurgical coal. The 2.5 percent rate applies through 2029, and no credit is available for metallurgical coal produced after December 31, 2029.¹

The Unrelated-Buyer Sale Requirement

The credit only applies to components sold to an unrelated person. If you manufacture a component and use it in your own operations without selling it, no credit is available.² A manufacturer that produces solar modules and uses them to generate electricity for its own business cannot claim on those modules, even if it sells identical modules to third parties.

Vertically integrated manufacturers get a workaround. If you produce a component (a battery cell) and then incorporate it into another eligible component (a battery module) that you sell to an unrelated buyer, the law treats the cell as having been sold too. You can claim on both. Starting in tax years beginning after December 31, 2026, a new limit applies: the credit for the primary component is available only if at least 65 percent of the manufacturing cost of the secondary component is attributable to that primary component.²

A taxpayer can also elect to treat a sale to a related person as if it were a sale to an unrelated person. The election is made in the form and manner prescribed by the IRS, which may require registration or additional information to prevent duplicate claims.⁵

Prohibited Foreign Entity Restrictions

The 2025 amendments introduced a new restriction: the credit is unavailable to taxpayers that are “prohibited foreign entities” or that receive material assistance from prohibited foreign entities. Escalating cost-ratio thresholds vary by component category and year. For 2026, the thresholds run from 40 to 85 percent depending on the component, and they increase in later years. Critical minerals have lower initial thresholds, starting at 0 percent for 2026 production and rising to 25 percent in 2027. Manufacturers sourcing from foreign entities that could trigger these rules should check the thresholds applicable to their specific component and production year.

No Stacking With Section 48C

You cannot combine the Section 45X production credit with the Section 48C Advanced Energy Project investment credit for the same facility. If any part of your manufacturing facility received a Section 48C allocation, nothing produced there qualifies for Section 45X.² Section 48C subsidizes building the factory; Section 45X subsidizes ongoing production. Manufacturers evaluate which path delivers more value before committing.

How to Claim the Credit

The credit is reported on IRS Form 7207, Advanced Manufacturing Production Credit.⁶ For each eligible component category, you enter the total production volume (watts, kilowatt-hours, kilograms, or square meters), multiply by the statutory rate, and record the credit amount. Form 7207 then feeds into Form 3800, General Business Credit, which aggregates business credits against total tax liability.⁷ Corporations file Form 7207 with Form 1120; other entities attach it to their income tax return. Electronic and paper filing are both accepted.

Records to Keep

Maintain production logs tracking every eligible component made in the United States or a U.S. possession, plus sales receipts and shipping records documenting sales to unrelated parties. For minerals, cost accounting must separately track eligible production costs and exclude raw material and extraction expenses.⁴

Capacity Testing Standards

Components credited per watt or per kilowatt-hour need documented capacity measurements using recognized standards. Solar cells and modules use Standard Test Conditions defined by the International Electrotechnical Commission, with documentation such as IEC 61215 or IEC 60904 certification. Wind components must be certified to standards like IEC 61400. Battery cells reference IEC 60086-1 or an equivalent standard, and battery modules must use a testing procedure that complies with a published national or international standard.⁸ Inverter capacity is documented through specification sheets or bills of sale.

Penalties for Inaccurate Claims

A substantial understatement of income tax triggers a civil penalty of 20 percent of the underpayment.⁹ Willful tax evasion carries criminal penalties of up to $100,000 in fines ($500,000 for corporations) and up to five years in prison.¹⁰

Direct Pay and Credit Transfer

Section 45X is one of the few credits where the direct pay election under Section 6417 extends beyond tax-exempt entities. Direct pay is normally limited to organizations exempt from income tax, state and local governments, tribal governments, the Tennessee Valley Authority, Alaska Native Corporations, and rural electric cooperatives. But Section 6417 lets any taxpayer producing eligible 45X components elect direct pay, receiving the credit as a cash refund rather than a reduction in tax owed.¹¹

Under Section 6418, a manufacturer can instead transfer all or part of the credit to an unrelated buyer for cash. The payment the transferor receives is not taxable income, and the buyer cannot deduct the purchase price. The election is irrevocable once made, and a credit that has already been transferred cannot be transferred again.¹²

Both elections require pre-filing registration through the IRS Energy Credits Online (ECO) portal. An authorized representative creates an ECO account, verifies identity, and obtains a registration number for each applicable credit property. Registration numbers must appear on the tax return. The IRS recommends completing registration at least 120 days before the return’s due date, including extensions.¹³ Missing this step can delay or disqualify the election, so treat the deadline as firm.

1
Office of the Law Revision Counsel. 26 USC 45X – Advanced Manufacturing Production Credit
2
Federal Register. Advanced Manufacturing Production Credit
3
Legal Information Institute. 26 USC 45X(c)(6) – Applicable Critical Mineral
4
Federal Register. Section 45X Advanced Manufacturing Production Credit
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Office of the Law Revision Counsel. 26 US Code 45X – Advanced Manufacturing Production Credit
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Internal Revenue Service. About Form 7207, Advanced Manufacturing Production Credit
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Internal Revenue Service. Instructions for Form 3800 and Schedule A (2025)
8
eCFR. 26 CFR 1.45X-3 – Eligible Components
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Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
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Office of the Law Revision Counsel. 26 USC 7201 – Attempt to Evade or Defeat Tax
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Office of the Law Revision Counsel. 26 USC 6417 – Elective Payment of Applicable Credits
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Office of the Law Revision Counsel. 26 US Code 6418 – Transfer of Certain Credits
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Internal Revenue Service. Register for Elective Payment or Transfer of Credits