President Joe Biden recently signed into law a 25% tax credit for equipment to manufacture semiconductors as part of broader bipartisan legislation to encourage domestic semiconductor chip manufacturing. The Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (H.R. 4346) passed the Senate by a 64-33 vote on July 27 before being passed by the House in a 243-187 vote on July 28.
The new “Advanced Manufacturing Tax Credit” is new Section 48D and is estimated to cost $24 billion over 10 years. It offers a 25% tax credit for placing into service tangible property integral to a facility with the primary purpose of manufacturing semiconductor or semiconductor equipment. Building and structural components can qualify as long as they are not used for offices, administrative services or other functions unrelated to administrative services.
Taxpayers will be eligible to claim the credit for progress expenditures, and they will be able to claim the credit as a fully refundable payment — even at the pass-through level. There are claw-back rules if the taxpayer undertakes “any significant transaction” involving the material expansion of semiconductor manufacturing capacity in China or a foreign country of concern.
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