45X in 2027: a 65% test for cell-plus-module credit

How 45X pays for a module today

Section 45X of the tax code, the advanced manufacturing production credit, pays the manufacturer, not the buyer. It covers eligible components "produced by the taxpayer" and "sold by such taxpayer to an unrelated person," and only production in the United States or a U.S. possession counts. For a solar module the credit is "7 cents, multiplied by" its capacity "expressed on a per direct current watt basis." For a crystalline photovoltaic cell it is 4 cents per watt.

Treasury's regulation at 26 CFR 1.45X-3 measures that capacity as nameplate watts at Standard Test Conditions, documented "in a bill of sale or design documentation, such as an IEC certification." Under 26 CFR 1.45X-1(f), a maker may claim a credit "for each eligible component the taxpayer produces and sells," including one it integrates into another eligible component that it sells. So a factory that makes its own cells and laminates them into modules can count both: 4 + 7 = 11 cents per watt (our arithmetic). A plant that buys its cells counts only the 7 cents.

What changes on January 1, 2027

Section 70514 of Public Law 119-21, approved July 4, 2025, rewrote the integrated-component rule in section 45X(d)(4). A component (the "primary component") still counts as sold only if it is built into another eligible component "produced within the same manufacturing facility" and that "secondary component is sold to an unrelated person."

The new condition is this: the rule applies "only" to a secondary component for which "not less than 65 percent of the total direct material costs" paid or incurred to produce it "are attributable to primary components which are mined, produced, or manufactured in the United States." The law says this change applies "to components sold during taxable years beginning after December 31, 2026." For a maker with a calendar tax year, that means module sales from January 1, 2027.

Other parts of the 45X schedule stay where they were:

• The rates. Seven cents per watt for modules and 4 cents for cells.
• The phase-out. For solar components sold after December 31, 2029, the credit steps down to 75% in 2030, 50% in 2031, 25% in 2032 and zero after that.
• The FEOC rules. Section 70514 also excludes from "eligible component" any property with "material assistance from a prohibited foreign entity." That applies to taxable years beginning after enactment. Our FEOC safe-harbor note covers how that cost-ratio test is measured.

The eCFR text of 1.45X-1 (checked November 11, 2026) still carries the earlier wording of the integrated-component rule. Treasury has not yet put the 65% test into the regulation.

What it means if you are buying modules

• Your price does not carry the credit. 45X goes to the manufacturer. But from 2027 the cell portion behind U.S.-made modules depends on how much of their material cost is domestic.
• Ask how the module is built. If a U.S. module maker uses imported cells, the change does not touch its 7-cent module credit, because that credit never depended on integrated cells. A maker that produces its own cells needs the 65% test met in that facility to keep counting the cell credit through its module sales.
• Keep the manufacturer and the project apart. The 65% figure is part of section 45X(d)(4), a production-credit rule for the manufacturer. It does not decide a project owner's own domestic-content questions, which sit elsewhere in the code. Our Domestic Content Playbook covers the project side.
• Stock already sold is settled. The rule turns on the maker's sale date and taxable year. It does not reach back to modules already sold.

Next date to watch

January 1, 2027, when the 65% test begins for calendar-year manufacturers. We will update this note if Treasury publishes regulations or guidance on how the test is measured.