Magnets Value Chain Support Act of 2026
- Sponsor
- Rep. Moolenaar, John R. [R-MI-2]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jun 9, 2026
Bottom line
This bill creates a comprehensive set of tax incentives to reshore and strengthen the entire domestic supply chain for permanent magnets, from raw materials to finished products, in order to enhance U.S. economic and national security.
What it actually does
This bill establishes two new tax credits within the Internal Revenue Code: the Magnet Value Chain Support Credit and the Domestic Magnet Input Usage Credit. The first incentivizes the domestic production of permanent magnets, magnet metals, and rare earth oxides, with tiered credit amounts based on material type and domestic content. The second provides a credit for U.S. manufacturers who use domestically produced permanent magnets in strategically important "covered products." The aim is to reduce U.S. reliance on foreign sources, particularly China, for these critical materials.
Proponents argue
Proponents argue that the United States is strategically dependent on foreign sources, primarily the People's Republic of China, for essential magnet metals and permanent magnets used in critical technologies and national defense systems. They contend that targeted, market-oriented incentives are necessary to restore competitive domestic production, counter non-market foreign practices, and build a resilient supply chain, thereby safeguarding national security and economic leadership.
Opponents contend
Critics might argue that such extensive tax credits could be fiscally costly, potentially distorting markets and leading to inefficient domestic production if not carefully managed. Concerns could also be raised about the administrative complexity of verifying domestic content and compliance with various restrictions, or that the incentives may not be sufficient to overcome deeply entrenched global supply chain advantages.
The bill is moderately complex due to its technical definitions, tiered credit structures, and detailed special rules, requiring careful reading to understand its full implications.
Section 1
Short Title: Magnets Value Chain Support Act of 2026
This section formally names the legislation as the "Magnets Value Chain Support Act of 2026." This provides a common and concise way to refer to the bill in public discourse and legislative processes.
Supporters argue
Supporters argue that a clear and descriptive short title helps in public communication and legislative tracking, making the bill's purpose immediately recognizable.
Critics contend
No specific opposition is typically raised against the short title of a bill.
Tradeoffs
None.
Section 2
Congressional Findings on Strategic Dependence
This section outlines Congress's rationale for enacting the bill, stating that the U.S. is strategically dependent on foreign sources, primarily China, for magnet metals and permanent magnets critical to various industries and national defense. It highlights China's decades-long strategy to dominate the rare earth supply chain and the need for targeted incentives to restore domestic production and reduce foreign dependence.
Section 3(a), adding new Section 45BB to the IRC
Establishment of Magnet Value Chain Support Credit
This provision creates a new tax credit, the "Magnet Value Chain Support Credit," for the domestic production of permanent magnets, magnet metals, and rare earth oxides. The credit amounts vary significantly, from $5 to $40 per kilogram, based on the type of material (e.g., rare earth-free, high-performance, advanced high-performance magnets) and the percentage of U.S. or partner country-sourced magnet metal inputs. Higher credits are awarded for more advanced magnets and greater domestic/partner content. The credit is available for taxable years beginning after December 31, 2026, and terminates after December 31, 2038.
Section 45BB(c)
Key Definitions for Magnet Production Credits
This section defines critical terms essential for applying the Magnet Value Chain Support Credit. Key definitions include "qualified permanent magnet" (categorized into rare earth-free, high-performance, advanced high-performance, and specified magnets, each with specific technical criteria), "qualified rare earth oxide," "magnet metal," "magnet metal input," "eligible production step," and "prohibited foreign entity." It also defines "partner country" to include NATO members, Japan, Australia, South Korea, Canada, and Mexico, with a mechanism for the Secretary to designate other facilities based on national security and supply chain resilience objectives.
Section 45BB(d)
Special Rules and Restrictions for Magnet Production Credits
This section outlines crucial special rules for the Magnet Value Chain Support Credit. It requires taxpayers to elect the application of the credit, prevents double benefits with other tax credits (like Section 45X), and imposes strict restrictions on any involvement from "prohibited foreign entities" in the entire value chain (metallization, alloying, refining, manufacturing, sourcing, or selling). Limited waivers (up to 90 days) are possible if no commercially reasonable non-prohibited alternative exists, with congressional reporting. The rules also specify ineligible materials (e.g., for stockpiling, resale, or export, with exceptions for partner countries and U.S. government sales) and mandate extensive disclosure and reporting requirements for supply chain transparency (origin, suppliers, purchasers, volumes, prices).
Section 4(a), adding new Section 45CC to the IRC
Establishment of Domestic Magnet Input Usage Credit
This provision establishes a new tax credit, the "Domestic Magnet Input Usage Credit," for taxpayers who purchase and use qualified permanent magnets in the manufacture of "covered products" in the United States. To be eligible, the magnets must be manufactured in the U.S. and not sourced from a prohibited foreign entity. The credit is a percentage of "qualified domestic magnet expenditures," starting at 15% for taxable years before 2035, declining to 10% for 2035-2036, and 5% for 2037-2038. It includes an anti-manipulation rule for purchase price and requires extensive documentation. The credit is available for taxable years beginning after December 31, 2026, and terminates after December 31, 2038.
Section 45CC(e)
Definition of "Covered Products" and Exclusions for Usage Credit
This section precisely defines the "covered products" eligible for the Domestic Magnet Input Usage Credit. These include core powertrain or generation components (motors, generators, rotating electrical machinery) used in high-performance electronic devices (e.g., for cooling, actuation, data storage, robotics, telecommunications) or power conversion systems (e.g., server-grade computers, telecommunications equipment, manned/unmanned vehicles, medical devices, precision munitions, and other critical defense applications). Crucially, it explicitly excludes low-power consumer appliances (e.g., toasters, blenders, toys) and other products the Secretary determines to be non-strategic, ensuring the incentives are focused on high-priority sectors.
Requires eligible taxpayers for the permanent magnet production credit to certify that at least 3% of their annual domestic production capacity of qualified permanent magnets has been maintained in an available and unencumbered state, capable of accepting and fulfilling orders placed pursuant to the Defense Priorities and Allocations System or defense contracts. The Secretary may waive this requirement for small producers.
Section 45BB(b)(1)(C)
Why it matters:While critical for national security, placing this requirement within eligibility criteria is a common legislative technique. It ensures that any company benefiting from the credit also contributes to defense readiness, without making it a separate, highly visible mandate.
Case for: Proponents argue this provision directly links economic incentives to national defense, ensuring that the incentivized domestic production creates a strategic reserve capacity for critical military needs without requiring direct government ownership or control of facilities.
Case against: Critics might argue that this requirement could be burdensome for manufacturers, especially smaller ones, potentially limiting participation or increasing compliance costs. The 3% threshold might be seen as arbitrary or difficult to maintain in practice.
Estimated impact: Creates a mandated defense-ready production capacity within the domestic permanent magnet industry, enhancing the U.S. military's access to critical materials.
No credit is allowed under the Magnet Value Chain Support Credit if any material is metallized, alloyed, refined, or manufactured as a permanent magnet by a "prohibited foreign entity," or incorporates magnet metals sourced from or sold to such an entity. The Secretary may grant waivers for periods of no longer than 90 days if no commercially reasonable non-prohibited foreign entity alternative is available, with detailed reporting to Congress.
Section 45BB(d)(3)
Why it matters:While the intent to exclude adversarial nations is a core policy goal, the specific mechanisms for doing so, including the waiver process and reporting, are often placed in technical sections. This is standard for outlining enforcement and exceptions to broad policy directives.
Case for: Proponents argue this is a critical national security measure, ensuring that the incentives do not inadvertently benefit or rely on adversarial nations, thereby strengthening true supply chain independence. The limited waiver provides necessary flexibility in cases of extreme commercial necessity.
Case against: Critics might argue that the strictness of the prohibition could severely disrupt existing supply chains, increase costs for domestic manufacturers, and that the 90-day waiver period is too short to address complex global sourcing issues. The reporting requirement, while transparent, does not mitigate the potential commercial impact.
Estimated impact: Significantly reshapes the supply chain for magnet materials, forcing companies to divest from or avoid reliance on prohibited foreign entities, with potential global trade implications.
No credit is allowed unless the taxpayer submits detailed information regarding the origin and processing locations of materials, identification of all material suppliers and downstream purchasers, volume of materials, existence and duration of binding offtake agreements, and transaction prices/formulas. This information is for supply chain risk assessment and market monitoring, with confidentiality protections.
Section 45BB(d)(6)
Why it matters:While essential for program oversight and evaluation, detailed reporting requirements are typically placed in administrative sections rather than headline provisions. This is standard for regulatory compliance, but its scope here is particularly broad.
Case for: Proponents argue these requirements are essential for transparency, allowing the government to monitor the effectiveness of the credits, assess supply chain risks, and ensure the program is achieving its strategic goals. Confidentiality provisions are included to protect proprietary data.
Case against: Critics might argue that these extensive disclosure requirements are overly burdensome, intrusive, and could deter some companies, especially smaller ones, from participating due to concerns about sharing sensitive commercial information, even with confidentiality protections.
Estimated impact: Creates a comprehensive data repository for the U.S. magnet supply chain, enabling detailed government oversight, market analysis, and risk assessment, but imposing significant compliance costs on businesses.