The IRS has released final regulations for the Advanced Manufacturing Investment Credit under the CHIPS Act. If your company manufactures semiconductors or related equipment in the United States, you may be eligible for significant tax credits on your manufacturing investments.

Background: The CHIPS Act and Section 48D

The CHIPS and Science Act, signed into law in 2022, aims to strengthen U.S. semiconductor manufacturing and reduce dependence on foreign supply chains. Section 48D provides a 25% investment tax credit for qualified investments in semiconductor manufacturing property placed in service after December 31, 2022.

Credit Overview and Eligibility

The Section 48D credit offers a 25% tax credit for investments in constructing advanced manufacturing facilities, specifically those focused on semiconductor manufacturing or related equipment. Eligible properties include those essential to manufacturing processes, such as fabrication equipment and cleanrooms, which must be tangible property where depreciation is allowed. In contrast, unrelated properties, like corporate office buildings, are generally ineligible.

Construction must begin by December 31, 2026, with the property placed in service after December 31, 2022, to qualify. For properties that began construction before January 1, 2023, the credit will only apply to the basis of the property attributable to construction, reconstruction, or erection of the property after August 9, 2022 (the date of CHIPS Act enactment). Additionally, coordination with Section 47 prevents benefits overlap, allowing only non-rehabilitation-related expenses to qualify for the 48D credit.

Key Clarifications

What Qualifies as Manufacturing

The regulations confirm that semiconductor manufacturing includes wafer production, fabrication, and packaging activities. Assembly processes that substantially transform components into new products also qualify. Manufacturing equipment includes specialized production tools, but consumables like chemicals and gases do not qualify.

Eligible Property

Cleanrooms, specialized HVAC systems, and automated manufacturing equipment essential to production qualify for the credit. Administrative offices and facilities used for non-manufacturing purposes are excluded. Property used primarily outside the United States is not eligible.

Foreign Transaction Restrictions

To protect U.S. interests and align with national security objectives, the credit will be recaptured if you materially expand semiconductor manufacturing capacity in certain foreign countries within 10 years after claiming the credit. Material expansions include adding cleanrooms or capacity increases exceeding 5%, as well as mergers or joint ventures involving foreign influence in countries of concern.

Construction Requirements

For projects currently under development, the regulations clarify when construction is considered to have begun and establish requirements for continuous progress. Multiple facilities may be treated as a single project if they’re owned by one entity and share characteristics like contiguous land or common utilities.

Taxpayers must spend at least 5% of total project costs in each calendar year after construction begins to maintain eligibility.

Why This Matters

These regulations provide clarity for semiconductor manufacturers planning capital investments and help ensure you can:

• Maximize available tax credits (25% of qualified investments)
• Structure investments to maintain eligibility
• Avoid issues that could trigger credit recapture
• Meet requirements for projects in development

Next Steps

If your business manufactures semiconductors or is planning investments in this sector, contact Brian Applebaum at bapplebaum@kbfadvisory.com to discuss how these regulations apply to your situation and identify potential tax savings.