February 2 2023

Overview of Inflation Reduction Act Investment Credit Changes, New Advanced Manufacturing Investment Credit in Updated Instructions

Source: IBFD Tax Research Platform News

The US Internal Revenue Service has provided an overview of investment credit changes enacted under the Inflation Reduction Act (IRA) in updated Instructions for filing Form 3468 - Investment Credit, issued by the US Internal Revenue Service (IRS) on 30 January 2023. The Instructions also highlight that the Creating Helpful Incentives To Produce Semiconductors (CHIPS) Act of 2022  enacted a new advanced manufacturing investment credit.

IRA changes

According to the updated Instructions, the IRA included several new or enhanced energy investment credits, which fiscal year filers may claim for periods in 2023. Specifically, the IRA established:

  • new credits for energy storage technology, qualified biogas property and microgrid controllers;
  • bonus credits for domestic content bonus credit, energy communities and certain solar and wind facilities in connection with low-income communities;
  • an election to treat clean hydrogen production facilities as energy properties;
  • new rules regarding prevailing wage requirements and apprenticeship requirements; and
  • new rules for certain filers to elect to treat credit amounts as deemed payments and rules related to the transfer of certain credits for tax years beginning in 2023, including short tax years beginning and ending in 2023.

The IRA also enhanced rules regarding qualifying advanced energy project.

Advanced manufacturing investment credit

The Instructions also provide that the CHIPS Act of 2022 added a new investment credit equal to 25% of the qualified investment in any advanced manufacturing facility for the primary purpose of manufacturing of semiconductors or semiconductor manufacturing equipment. The credit applies to property placed in service after 2022 and, for any property the construction of which begins prior to 2023, only to the extent of the basis thereof attributable to the construction, reconstruction or erection after 9 August 2022.