Section 48D Tax Credit: Rate, Elective Payment, and Recapture

The Section 48D tax credit is a federal advanced manufacturing investment credit worth 35 percent of a taxpayer’s qualified investment in a U.S. semiconductor manufacturing facility, provided construction begins before January 1, 2027.¹ It offsets federal income tax dollar-for-dollar, and eligible taxpayers can elect to receive it as a cash payment from the Treasury instead.

The 35 Percent Rate and the 2027 Deadline

The One Big Beautiful Bill Act, signed July 4, 2025, raised the credit from 25 percent to 35 percent for property placed in service after December 31, 2025.¹ Property placed in service during 2023 through 2025 stays at the original 25 percent rate.

Section 48D(e) terminates the credit for any property whose construction begins after December 31, 2026.¹ Two IRS methods establish beginning of construction. Under the physical work test, physical work of a significant nature must begin on or before December 31, 2026. Under the 5 percent safe harbor, the taxpayer must incur at least 5 percent of the total facility cost by that date. Both methods require continuous progress toward completion afterward. That makes 2026 the last practical year to break ground.

Who Can Claim It

Any taxpayer making a qualified investment in an advanced manufacturing facility can claim the credit, subject to two conditions. The taxpayer cannot be a “foreign entity of concern” as defined under the National Defense Authorization Act for Fiscal Year 2021, and the taxpayer must not have engaged in an “applicable transaction” during the tax year.¹

An advanced manufacturing facility is one whose primary purpose is manufacturing semiconductors or semiconductor manufacturing equipment.² Research-only facilities do not qualify. A site combining research and production can qualify if manufacturing is the primary function.

What Property Counts

The credit applies to the basis of “qualified property” placed in service during the tax year as part of the facility. Qualified property must be:

Tangible property for which depreciation or amortization is allowable.
Either constructed, reconstructed, or erected by the taxpayer, or newly acquired with original use beginning with the taxpayer. Used equipment is out.
Integral to the operation of the advanced manufacturing facility.
Placed in service after December 31, 2022.¹

Buildings and structural components qualify when they are integral to manufacturing. Clean rooms, specialized climate-control systems, and production-floor structures pass this test. Space used for offices, administration, or anything unrelated to manufacturing does not.² Splitting mixed-use square footage accurately matters, because overstating qualified investment invites adjustment or denial.

Section 48D also lets taxpayers claim the credit on progress expenditures during construction, before a facility is placed in service, following rules similar to former Section 46(c)(4) and (d).¹ Multi-year builds do not have to wait for the whole plant to go live.

How the Credit Is Calculated

Qualified investment for the year equals the basis of all qualified property placed in service that year as part of the facility.¹ Multiply by 35 percent for property placed in service in 2026 or later, or 25 percent for property placed in service during 2023 through 2025.

Put $200 million of qualifying clean-room equipment and structural components into service during 2026, and the credit is $70 million. That $70 million offsets federal income tax liability one-to-one. If liability is short, the elective payment election converts the excess into a refund.

The Basis Reduction Catch

Section 48D(d)(5) applies rules similar to Section 50(c), which generally requires reducing the depreciable basis of the credited property by 50 percent of the credit amount.¹ In the $200 million example, $35 million of basis becomes non-depreciable. The credit still comes out well ahead on a net-present-value basis, but the smaller depreciation stream belongs in the model.

Getting the Credit as Cash: Elective Payment

Section 48D offers elective payment to all eligible taxpayers, not just tax-exempt entities.³ The IRS treats the credit as a payment of tax; anything above the year’s liability comes back as a refund. That makes the incentive equally usable by a pre-revenue startup and a profitable incumbent.

Partnerships and S corporations make the election at the entity level. Partners and shareholders cannot make it separately on their allocated share. The election is irrevocable for the tax year in which it is made, so run the numbers before filing.⁴

Pre-Filing Registration

Before claiming elective payment, register through the IRS Energy Credits Online portal and obtain a registration number for each applicable credit property.⁵ The number must appear on the return. Without it, the election will not process.

The IRS recommends registering at least 120 days before the return’s due date, including extensions. Registration should happen after the property is placed in service but no earlier than the beginning of the tax period in which the credit is earned.⁵

The Credit Cannot Be Sold

Unlike several Inflation Reduction Act energy credits, Section 48D is not eligible for transfer to an unrelated taxpayer under Section 6418; the list of transferable credits in that section does not include 48D.⁶ The only ways to monetize the credit are using it against the taxpayer’s own liability or making the elective payment election.

Filing

The credit is calculated on IRS Form 3468, Investment Credit, in the advanced manufacturing section. The result flows to Form 3800, General Business Credit, which aggregates business credits for the year.² Both forms attach to a timely filed federal income tax return, extensions included.

For elective payment filers, the return must include the registration number from the IRS Energy Credits Online portal and explicitly make the election to treat the credit as a payment of tax. It must be filed by the due date or extended due date.²

Support the claim with cost basis for each qualified asset, placed-in-service dates, and evidence that the facility’s primary purpose is semiconductor manufacturing. Engineering plans, production logs, and construction contracts help establish that the site meets the statutory definition rather than functioning as a research operation.

The China Recapture Risk

The “guardrail” is where most compliance risk lives. An applicable transaction is any significant transaction involving material expansion of a taxpayer’s semiconductor manufacturing capacity in the People’s Republic of China or another designated foreign country of concern.⁷ Transactions that primarily expand legacy semiconductor capacity are carved out.

Engaging in an applicable transaction within the 10-year period after placing the credited property in service triggers recapture of 100 percent of the aggregate 48D credits allowed for property placed in service during that period.⁸ Not a partial clawback. All of it.

There is one escape hatch. If the Commissioner determines an applicable transaction occurred and notifies the taxpayer, the taxpayer has 45 days to cease or abandon the transaction to avoid recapture.⁸ Any company with international semiconductor operations should map planned expansions against these rules before claiming the credit.

Carryforward and Carryback

Because 48D is a component of the general business credit under Section 38, unused credit follows the standard rules in Section 39: carry back one year, forward up to 20 years.⁹ The carryback cannot go earlier than the first year the credit was available. Taxpayers electing direct pay generally will not need the carryforward, since the entire credit becomes a refundable payment in the year earned.

Stacking with the Section 45X Production Credit

Section 45X, the advanced manufacturing production credit, rewards output rather than capital investment. The two credits serve different functions: 48D incentivizes building the facility, 45X incentivizes running it. The same taxpayer can use both, and the combined benefit is significant for a company that both constructs a new fab and produces qualifying components.¹⁰ Anyone stacking them should coordinate the basis and production calculations with a tax advisor so they do not overlap in ways that create audit exposure.

1
Office of the Law Revision Counsel. 26 USC 48D – Advanced Manufacturing Investment Credit
2
Internal Revenue Service. Advanced Manufacturing Investment Credit
3
Federal Register. Elective Payment of Advanced Manufacturing Investment Credit
4
eCFR. 26 CFR 1.48D-6 – Elective Payment Election
5
Internal Revenue Service. Register for Elective Payment or Transfer of Credits
6
Office of the Law Revision Counsel. 26 US Code 6418 – Transfer of Certain Credits
7
Office of the Law Revision Counsel. 26 USC 50 – Other Special Rules
8
eCFR. 26 CFR 1.50-2 – Recapture of the Advanced Manufacturing Investment Credit
9
Office of the Law Revision Counsel. 26 US Code 39 – Carryback and Carryforward of Unused Credits
10
Novogradac. Aligned Co-Utilization and Extension of Sections 45X and 48D Are Integral to US Manufacturing, Economic Revitalization and Energy Security