This bill adds a new Internal Revenue Code section that grants a production tax credit to companies that manufacture high‑performance rare earth permanent magnets in the United States and sell them to unrelated buyers. It couples the subsidy with sourcing restrictions that disqualify credits when component rare earth materials originate in specified non‑allied countries, and it includes an elective cash‑payment mechanism to accelerate support.
Why it matters: rare‑earth permanent magnets are critical inputs for electric motors, wind turbines, and many defense systems. The bill uses tax policy to push private investment into domestic upstream and downstream capacity, while steering material sourcing toward allied suppliers.
That combination of financial incentive plus origin rules creates both an industrial policy tool and a compliance burden for manufacturers and tax administrators.
At a Glance
What It Does
The bill creates a new IRC section (45BB) that provides a per‑kilogram credit for U.S. manufacture and sale of qualifying rare earth magnets, with an enhanced rate for magnets whose component rare earth materials are at least 90% U.S.‑produced by weight. It disqualifies credits when component materials come from designated non‑allied nations, phases the credit down in the mid‑2030s, and allows taxpayers to elect an immediate payment in lieu of a future tax offset.
Who It Affects
Domestic permanent‑magnet manufacturers and fabricators, upstream miners and refiners of neodymium/praseodymium/dysprosium/etc., OEMs that use high‑performance magnets (EVs, wind, defense primes), corporate tax and compliance teams, and the IRS and agencies asked to coordinate on sourcing and national‑security determinations.
Why It Matters
The measure channels federal tax dollars to reshape a strategically important supply chain and reduce reliance on adversary suppliers. For companies it changes the calculus for plant siting, vertical integration, sourcing strategies, and tax planning; for government it creates a new enforcement and certification task around material origin and eligibility.
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What This Bill Actually Does
The bill inserts a new section 45BB into the Internal Revenue Code giving a per‑kilogram production credit for so‑called rare earth permanent magnets that a taxpayer manufactures in the United States and sells to an unrelated buyer. The statute identifies qualifying magnets by coercivity and by the alloys used (neodymium‑iron‑boron and samarium‑cobalt families) and lists the component elements (neodymium, praseodymium, dysprosium, terbium, samarium, gadolinium, and cobalt). “Manufactured” expressly covers stages such as milling, pressing, sintering, and recycling of component material, so recycled content can count toward production activity.
The credit rate is set per kilogram with a higher amount available if at least 90% of the magnet’s component rare earth materials (by weight) are produced in the United States. The statute phases the credit down in a three‑year schedule starting in 2035 and eliminates it after calendar year 2037.
To prevent subsidizing magnets that rely on strategic inputs from adversary suppliers, the bill bars credits when any component rare earth material is produced in a defined non‑allied foreign nation; however, that sourcing ban is delayed until January 1, 2027 for dysprosium, terbium, samarium, and gadolinium. There is also a narrow wartime exception permitting materials seized from a non‑allied nation by Ukraine or an allied country to qualify, subject to taxpayer certification to the IRS.The statute contains several practical compliance rules.
A sale to an unrelated person is required for creditability, but taxpayers can elect (in a format the IRS prescribes) to treat certain related‑party sales as if they were to unrelated purchasers; the Secretary may demand registration or other information to prevent fraud. The credit only applies to magnets produced in the ordinary course of a taxpayer’s trade or business.
The Secretary may waive the coercivity threshold for magnets made by an “eligible manufacturer” — a firm that has a DOE or DoD grant/contract and commits to place in service a domestic facility producing magnets of national‑security merit.Administratively, the bill makes the new credit part of the general business credit regime and offers an elective payment option: taxpayers can elect to treat all or part of the credit as a payment against tax (effectively a cash‑style payment), with the payment treated as made on the later of the return due date or the date the return is filed. The amendment applies to taxable years beginning after December 31, 2024, so manufacturers will evaluate eligibility and recordkeeping for recent tax years as well.
The Five Things You Need to Know
The bill creates section 45BB of the IRC and makes that credit part of the general business credit (added to section 38).
Credit eligibility requires manufacture in the United States and a sale to an unrelated person, but taxpayers can elect to treat certain related‑party sales as sales to unrelated buyers subject to IRS registration and anti‑fraud checks.
The statute defines qualifying magnets by an intrinsic coercivity threshold and by specific alloy families, and it explicitly counts milling, pressing, sintering, and recycling as manufacturing activities.
Credits are disallowed if any component rare earth material is produced in a ‘non‑allied foreign nation,’ but dysprosium, terbium, samarium, and gadolinium are exempt from that restriction until January 1, 2027; there is a narrow wartime seized‑material exception with a certification requirement.
Taxpayers may elect to treat all or part of the credit as a payment against tax (an electable cash payment), with that payment treated as made on the later of the tax return’s due date or the date the return is filed.
Section-by-Section Breakdown
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Short title
Simple one‑line delegation: the Act may be cited as the "Rare Earth Magnet Security Act of 2025." This is purely stylistic but useful for locating the new tax provisions in public and legal references.
Creates the production credit and eligibility framework
This subsection inserts the new section 45BB into the Code. It establishes the basic gatekeepers: manufacture in the United States, sale to an unrelated person (with an election mechanism for related‑party transactions), and the credit calculation framework. For practitioners, this is the anchor point for all eligibility analyses and the place to start when drafting compliance checklists and audit trails.
Per‑kilogram credit and phase‑out mechanics
This provision sets the dollar‑per‑kilogram credit (standard and enhanced rates) and specifies a phased reduction beginning in calendar year 2035 with full expiration after 2037. The phase‑out is formulaic: the credit for production in 2035 is scaled to 70 percent of the statutory rate, 35 percent for 2036–37, and 0 percent thereafter. That schedule shapes investment timing — firms will model plant openings, capacity ramps, and contract price negotiations around the credit’s sunset profile.
Technical definitions (qualifying magnets and component materials)
This section defines ‘rare earth magnet’ by an intrinsic coercivity threshold and by allowable alloy families (neodymium‑iron‑boron family and samarium‑cobalt family) and lists the component rare earth materials that matter for sourcing tests. It also defines 'manufactured' broadly to include recycling steps. For compliance teams, these definitions determine which product lines qualify and whether recycled feedstocks will be captured by the credit.
Sourcing restrictions, exceptions, and special eligibility rules
This is the enforcement and national‑security layer: the basic rule disallows credits when any component rare earth material is produced in a non‑allied foreign nation (as cross‑referenced to 10 U.S.C. 4872(f)). Dysprosium, terbium, samarium, and gadolinium are carved out of that ban until January 1, 2027, acknowledging near‑term supply constraints. There’s also a wartime seizure exception for materials seized by Ukraine or allied countries, but it requires taxpayer certification. The subsection adds a trade‑or‑business requirement and authorizes the Secretary to treat lower‑coercivity magnets as qualifying if the manufacturer is a DOE/DoD grantee or contractor that commits to a domestic facility producing magnets of national‑security merit.
Elective payment and integration into the tax code
Subsection (e) permits taxpayers to elect to treat some or all of the credit as a payment against tax — effectively an advance/cash option — and fixes the timing rules for when that payment is treated as made. Separate conforming language adds the new credit to the general business credit list in section 38(b). The bill’s effective date covers taxable years beginning after December 31, 2024, which matters for retrospective accounting and for taxpayers that already placed qualifying manufacturing facilities into service in early 2025.
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Explore Economy in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Domestic permanent‑magnet manufacturers — receive a per‑kilogram subsidy that improves project returns and incentivizes onshore capacity investment, including new sintering, pressing, and recycling lines.
- U.S. processors, refiners and recyclers of component rare earth materials — higher domestic demand for neodymium/praseodymium/dysprosium/etc. improves market prospects for upstream facilities and can attract capital into refining and separation capacity.
- Defense primes and clean‑energy OEMs — stand to gain from a more secure domestic supply of critical magnets and may see fewer procurement disruptions if reshoring occurs; firms with long‑term offtake can use credits to negotiate lower supplier quotes.
- DOE and DOD‑funded manufacturers — the bill explicitly creates a pathway (via the ‘eligible manufacturer’ exception) for grant/contract recipients to qualify magnets that don’t meet coercivity thresholds, supporting pilot lines and strategic builds.
Who Bears the Cost
- Foreign suppliers and processors in non‑allied countries — losing sales or being excluded from subsidy benefits if component materials are produced in those jurisdictions.
- Manufacturers that rely on existing global supply chains — will face higher compliance costs, potential re‑sourcing expenses, or lost credit eligibility if they cannot prove domestically produced inputs.
- U.S. taxpayers/federal budget — the per‑kilogram credits and elective payments represent an outlay or foregone revenue; the elective payment option accelerates cash flow impact on Treasury.
- IRS and agencies (State, Defense) — must set up origin verification, registration, and coordination mechanisms; enforcement and anti‑fraud capacity will drive administrative costs and require technical expertise.
Key Issues
The Core Tension
The bill pits a clear national‑security objective — rapid development of a domestic high‑performance magnet supply chain and reduced reliance on adversary producers — against the fiscal, trade, and administrative costs of enforcing content and origin rules; achieving both secure supplies and affordable, predictable markets requires tradeoffs with no neat solution.
The bill trades security for complexity. Verifying that 90 percent of component materials are produced in the United States is administratively intensive: it requires reliable chain‑of‑custody rules, clear guidance on when refining/processing counts as ‘production,’ and coordination between IRS, Commerce/State, and Defense to maintain lists of non‑allied countries.
That verification burden invites compliance costs, potential disputes over origin determinations, and avenues for circumvention through minimal processing in allied third countries.
The sourcing restrictions create awkward transitional policy choices. Carving out certain elements until 2027 recognizes current supply shortages but also embeds a temporary concession that could be gamed if firms delay investment.
The wartime seized‑material exception is narrow and fact‑dependent; its reliance on taxpayer certification raises both enforcement and reputational questions, and it may be hard to operationalize. Finally, the elective payment option effectively lets taxpayers convert a tax preference into near‑cash support; without appropriation or budgetary caps, that mechanism can behave like an uncapped refundable credit and accelerate fiscal exposure.
The phase‑out schedule may produce a boom‑and‑bust investment dynamic if firms time capacity additions to capture the highest credit years, complicating a stable industrial base outcome.
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