Rare Earth Magnet Security Act of 2025
The Rare Earth Magnet Security Act of 2025 would create a new federal tax credit designed to encourage U.S. production of high-performance rare earth magnets. The credit applies to magnets manufactured in the United States and sold to unrelated customers in the same year. A higher credit is available if at least 90% by weight of the component rare earth materials come from the United States. The bill also includes sourcing restrictions to limit reliance on non-allied foreign sources, with a temporary exemption for certain materials through 2026. It provides an optional cash payment election, a phase-out schedule ending in 2037, and a potential coercivity-based exception for certain eligible manufacturers. The credit is integrated into the general business credit and would apply to taxable years beginning after December 31, 2024. In short, the bill seeks to build domestic capability for high-performance magnets (key for defense, energy, and tech supply chains) by offering a dollar-for-dollar tax credit per kilogram of magnets produced in the U.S., with stronger incentives for domestically sourced materials and specific domestic manufacturing requirements, plus optional upfront cash support and a mechanism to protect national security interests.
Key Points
- 1Establishes a new general business tax credit (Sec. 45BB) for production of rare earth magnets manufactured in the United States and sold to unrelated customers in the same year; credit equals the sum of amounts under (a)(1) and (a)(2).
- 2- Base credit: $20 per kilogram of rare earth magnets produced in the U.S.
- 3- Enhanced credit: $30 per kilogram if at least 90% by weight of the component rare earth materials are produced in the United States.
- 4Phase-out of the credit beginning after 2034:
- 5- 2035: credit amount reduced by 70% (i.e., only 30% of the base/enhanced amount, as calculated).
- 6- 2036-2037: further reduction to 35%.
- 7- After 2037: no credit.
- 8Sourcing and eligibility rules:
- 9- Generally, no credit if any component rare earth material is produced in a non-allied foreign nation (as defined for purposes of U.S. defense/foreign relations law).
- 10- Temporary exception for dysprosium, terbium, samarium, and gadolinium materials through 1/1/2027.
- 11- Magnet must be manufactured in the ordinary course of the taxpayer’s trade or business.
- 12- Coercivity-based exception: Secretary may allow magnets that don’t meet the coercivity threshold to qualify if produced by an “eligible manufacturer” (e.g., DOE- or DoD-funded contracts/grants with a commitment to domestic facilities delivering security/merit).
- 13Definitions and scope:
- 14- “Rare earth magnet” means a permanent magnet with a coercivity HCj of at least 10 kOe at 68°F (20°C) and composed of either Nd/Fe/B (with possible additives) or Sm/Co (with possible additives).
- 15- “Component rare earth materials” include neodymium, praseodymium, dysprosium, terbium, samarium, gadolinium, and cobalt.
- 16- “Manufactured” includes the processes and recycling involved in making the magnet (milling, pressing, sintering).
- 17- “Non-allied foreign nation” follows the definition in U.S. law related to national security.
- 18Elective payment option:
- 19- Taxpayers can elect to treat part of the credit as a payment against tax (an advance cash-like treatment) for the year.
- 20- Payment timing: the later of the tax return due date or the filing date.
- 21- This option is in addition to, and in effect may advance, the credit against tax liability.
- 22Administrative integration:
- 23- The credit becomes part of the general business credit under the tax code.
- 24- Requires conforming amendments and definitions in the Internal Revenue Code and related tables.
- 25Effective date:
- 26- Applies to taxable years beginning after December 31, 2024.