Article
Eligible for this investment tax credit? Find out with cost segregation
Oct. 5, 2023 · Updated April 15, 2025 · Authored by Irina Antonache and Chris L'Heureux
Manufacturers of semiconductors and semiconductor manufacturing equipment in the United States may achieve significant tax savings from Internal Revenue Code (IRC) Section 48D, the advanced manufacturing investment tax credit.
Established by the Creating Helpful Incentives to Produce Semiconductors and Science Act, commonly referred to as the CHIPS act, the Section 48D credit is based on certain criteria related to the types of property used in the manufacturing process.
One important factor in determining eligibility for the credit is identifying the components of the building used in the manufacturing process. An engineering-based cost segregation study can be a valuable tool in identifying these components.
Advanced manufacturing investment tax credit
The advanced manufacturing investment tax credit provides a federal income tax credit of up to 25% of the investment in qualified property placed into service by the taxpayer during the taxable year beginning on or after Jan. 1, 2023, or for which construction begins on or before Dec. 31, 2026.
Qualified property includes:
- Facilities dedicated to manufacturing semiconductors or related equipment
- Tangible property like buildings or structural components integral to operation
Some exceptions include buildings or portions thereof used for offices, administrative services, or other nonmanufacturing functions.
Additionally, any advanced manufacturing expenditures attributable to qualified rehabilitation as defined in IRC Section 47(c)(2) wouldn’t be eligible.
One important factor in determining eligibility for the advanced manufacturing tax credit is identifying the components of the building used in the manufacturing process. This can be a complex task, as many building components may have multiple uses and it may be difficult to determine which components are specifically used in the manufacturing process.
Benefits of a cost segregation study in identifying eligible components
A cost segregation study is a method of identifying the components of a building that can be depreciated over shorter periods of time than the building itself.
The components that are classified as personal property can be depreciated differently, resulting in a faster tax write-off.
The study is typically done by a team of engineers and tax professionals who:
- Review the building plans and specifications
- Perform a detailed site inspection
- Analyze and determine the components that can be classified as personal property, rather than real property
For example, while a building may be depreciated over 39 years, certain components may be depreciated over five, seven, or 15 years.
This can result in significant tax savings, as the building owner can accelerate the depreciation of these components to increase deductions in earlier years, thereby reducing their taxable income.
An engineering-based cost segregation study provides detailed analysis
An engineering-based cost segregation study can identify the components of a building eligible for the advanced manufacturing investment tax credit.
The study provides a detailed analysis of the building components to help determine credit eligibility, including:
- Location
- Function
- Use in manufacturing process
In addition, the cost segregation study provides a detailed breakdown of the cost of each component, which is necessary to determine the amount of credit the building owner is eligible to claim.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.