The U.S. Treasury Department and the IRS released guidance on May 12, 2023 explaining the Inflation Reduction Act’s domestic content bonus for clean energy projects built with USA-made materials. The guidance is IRS Notice 2023-38.
How the bonus works
- Projects that meet the domestic content requirement get a 10 percent boost to the production tax credit, or up to 10 percentage points on the investment tax credit.
- All steel and iron manufacturing processes must take place in the USA.
- At least 40 percent of the cost of manufactured products and components (20 percent for offshore wind) must be USA-made, rising to 55 percent in 2027 (2028 for offshore wind), according to the Department of Energy.
- A manufactured product counts as USA-made if its manufacturing happens here and all its components are made here, following the Federal Transit Administration’s Buy America rules.
The solar question
Reuters reported that the guidance took a “middle road,” letting solar developers claim the bonus for systems built with USA-made products even if the panels contain cells made in China, as long as the cost thresholds are met. The guidance includes a safe harbor that classifies components for common project types.
FAQ
What is the domestic content bonus?
An extra tax credit for clean energy projects that use enough USA-made steel, iron and manufactured products.
How large is it?
10% on the production credit or up to 10 points on the investment credit.
What notice sets the rules?
IRS Notice 2023-38.
Source & credit
Source: U.S. Department of the Treasury, May 12, 2023: “Treasury Department Releases Guidance to Boost American Clean Energy Manufacturing”.
Also: IRS Notice 2023-38; Reuters, May 12, 2023: “US Treasury takes middle road on solar panels ‘Made in the USA’”.