18 July 2025 Provisions benefiting the metals and mining industry included in final FY 2025 reconciliation legislation
Final budget reconciliation legislation (H.R. 1), signed into law on July 4, 2025 (the Act), contains several provisions that could benefit the mining and minerals industry, such as a reduction in royalty rate for coal production on federal lands and the addition of metallurgical coal to the list of critical minerals that qualify for the IRC Section 45X advanced manufacturing production tax credit. The Act directs the Interior Secretary to process any pending coal lease applications within 90 days of enactment (i.e., by October 2, 2025), effectively resuming federal coal lease sales. The Interior Secretary is further directed within 90 days of enactment to open for lease sales an additional 4 million acres of known recoverable coal resources on federal land within the 48 contiguous states and Alaska. National parks, wildlife refuges and additional protected lands listed within the Act are specifically excluded from those the Interior Secretary is directed to open for lease sales. The Act also authorizes the mining of federal coal reserves that are adjacent to state or private reserves. The Act amends Section 7(a) of the Mineral Leasing Act (30 U.S.C. 207(a)) to reduce the royalty rate for coal mined on federal lands from 12.5% to 7% beginning on the effective date (July 4, 2025) and ending on September 30, 2034. The Act provides a credit to any lessee that paid advance royalties for coal mined on federal lands. The credit is calculated as the difference between the advance royalties paid at the time the lease was signed and the advance royalties the lessee would have paid at the 7% rate imposed by the Act. The Act provides the Department of Defense Credit Program with $500 million to carry out capital assistance programs, such as loans and loan guarantees, specifically focused on "critical minerals and related industries and projects." The Act significantly changes several tax provisions affecting the mining and minerals industry. The Act, among other changes:
Current law allows taxpayers to claim additional depreciation (i.e., bonus depreciation) under IRC Section 168(k) in the year in which qualified property is placed in service through 2026 (with an additional year to place the property in service for qualified property with a longer production period, as well as certain aircraft). It also allows taxpayers to claim 100% bonus depreciation for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024, for certain qualified property with a longer production period, as well as certain aircraft). Bonus depreciation phases down to 80% for qualified property placed in service before January 1, 2024; 60% for qualified property placed in service before January 1, 2025; 40% for qualified property placed in service before January 1, 2026; and 20% for qualified property placed in service before January 1, 2027. Qualified property is defined as tangible property with a recovery period of 20 years or less under the modified accelerated cost recovery system, certain off-the-shelf computer software, water utility property, or certain qualified film and television productions, as well as certain qualified theatrical productions. Certain trees, vines and fruit-bearing plants also are eligible for bonus depreciation when planted or grafted. Property is generally eligible for bonus depreciation if the taxpayer has not used the property previously (i.e., it is the taxpayer's first use of the property), provided the taxpayer does not acquire the "used" property from a related party or in a carryover basis transaction). The Act permanently extends bonus depreciation and allows taxpayers to claim 100% bonus depreciation for qualified property acquired after January 19, 2025, as well as specified plants planted or grafted on or after that date. In addition, the Act modifies IRC Section 168(k)(10) to give taxpayers the option to elect to claim 40% bonus depreciation (or 60% for longer production period property or certain aircraft) in lieu of 100% bonus depreciation for qualified property placed in service during the first tax year ending after January 19, 2025 (Transitional Election). The new law (other than the Transition Election) applies to property acquired and placed in service after January 19, 2025, as well as to specified plants planted or grafted after that date. Property will not be treated as acquired after the date on which a written binding contract is entered for such acquisition. Permanent 100% bonus depreciation is a welcome development for taxpayers in the metals and mining industry, particularly for taxpayers contemplating large bonus-eligible asset acquisitions at the time of enactment. Because the acquisition of otherwise eligible property must occur after January 19, 2025, to qualify for 100% bonus depreciation, taxpayers will need to analyze whether assets placed in service after January 19, 2025, satisfy the acquisition date requirements, which will generally involve a review of the underlying purchase contracts. Property acquired on or before January 19, 2025, is subject to the bonus depreciation rules under current law. Taxpayers that do not want to immediately return to 100% expensing are afforded the option to elect a reduced bonus depreciation percentage (40% for most property) in the first tax year ending after January 19, 2025. IRC Section 45X provides a PTC for each eligible component that is produced by the taxpayer in the US and sold to an unrelated person during that tax year (see Tax Alert 2024-2057 for discussion of related final regulations). To qualify, the taxpayer must be in the trade or business of producing and selling the eligible component. The term "eligible component" generally means (1) any solar energy component (such as photovoltaic cells, photovoltaic wafers, solar grade polysilicon, etc.), (2) any wind energy component, (3) an inverter (as described in the IRA), (4) any qualifying battery component (including battery cells and modules), and (5) any applicable critical mineral. The IRC Section 45X credit amount varies depending on the eligible component. For eligible components other than applicable critical minerals, the IRC Section 45X credit decreases as follows: (1) 75% of the otherwise available credit for eligible components sold during 2030, (2) 50% of the otherwise available credit for eligible components sold in 2031, (3) 25% of the otherwise available credit for eligible components sold in 2032, and (4) no credit for components sold in 2033 or after. Applicable critical minerals are not subject to the phase-out. The Act adds restrictions to, and advances termination of, the credit. The Act phases out the credit for producing critical minerals (other than metallurgical coal) by allowing: 75% of the credit in 2031, 50% in 2032, 25% in 2033, and 0% beginning in 2034. Metallurgical coal suitable for use in the production of steel (within the meaning of the notice published by the Department of Energy titled "Critical Material List: Addition of Metallurgical Coal Used for Steelmaking"), regardless of whether such production occurs inside or outside of the US, is added as a credit-eligible critical mineral through December 31, 2029, at a rate of 2.5% of the cost incurred. FEOC limitations: No credit is allowed for components that are "manufactured" in tax years beginning after July 4, 2025, and subject to any material assistance from a prohibited foreign entity. For specified foreign entities and foreign influenced entities, no credit is allowed for tax years beginning after July 4, 2025. The addition of metallurgical coal ought to be well-received by certain coal companies and may mark the first time a production tax credit has been available for non-US production. While the general credit rate for the production of critical minerals under IRC Section 45X(b)(1)(M) is 10%, the credit for the production of metallurgical coal is 2.5%. Companies should also note the limited nature of the credit, as no credit will be available for metallurgical coal produced after December 31, 2029. The IRA allows certain credits to be transferred (see Tax Alerts 2022-1169, 2024-0933). Under IRC Section 6418, an eligible taxpayer can elect to transfer all (or any portion specified in the election) of an eligible credit to an unrelated transferee taxpayer. The Act leaves the transferability provisions largely intact but prohibits the transfer of eligible tax credits to specified foreign entities. Many metals and mining companies have played a role in the "transferability" market as either purchasers or sellers of tax credits in transactions with unrelated parties. The retention of the transferability rules under IRC Section 6418 provides certainty for that market; purchasers can better plan for capital outlays, while developers or sellers of tax credits have assurance that certain tax credits can be monetized, thereby bolstering a project's liquidity. Under current law, taxpayers must treat research or experimental expenditures, including software development costs, as chargeable to capital account and amortize those expenditures over five years (15 years for foreign research). Any capitalized research or experimental expenditures relating to property that is disposed of, retired or abandoned during the amortization period must continue to be amortized throughout the remainder of the period.
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The Act does not disturb the current law requirement under IRC Section 174 to capitalize and amortize foreign research or experimental expenditures over 15 years, beginning with the midpoint of the tax year in which the expenditures are incurred. The Act amends IRC Section 174(d) to require continued amortization of foreign research or experimental expenditures for property that is disposed of after May 12, 2025, even if the expenditures would otherwise reduce the amount realized from the disposition. The Act makes a conforming amendment to IRC Section 59(e) to exclude foreign research or experimental expenditures from the election to capitalize and recover research or experimental expenditures over 10 years. However, domestic research or experimental expenditures that are otherwise deductible under IRC Section 174A are eligible for the election under IRC Section 59(e). Lastly, the Act makes various conforming amendments to other provisions of the IRC, including a conforming amendment to IRC Section 280C(c) to provide that domestic research or experimental expenditures otherwise taken into account under Chapter 1 of the IRC (whether deducted or capitalized) are reduced by the amount of the credit allowed under IRC Section 41(a). The new law is generally effective for amounts paid or incurred for domestic research in tax years beginning after December 31, 2024. Small businesses that meet the gross receipts test under IRC section 448(c) (generally average gross receipts of $31 million or less), however, can elect to apply the new law retroactively to tax years beginning after December 31, 2021, by filing amended returns. A change to apply the new law is generally treated as a change in method of accounting under IRC Section 446. Additionally, the Act allows all taxpayers that incurred and capitalized (under IRC Section 174) domestic research or experimental expenditures after December 31, 2021, and before January 1, 2025, to elect to deduct any remaining unamortized amount with respect to such expenditures in their first tax year beginning after December 31, 2024, or ratably over the two tax year period beginning with the first tax year that begins after December 31, 2024. The election is treated as a change in method of accounting for amortization that is implemented on a cut-off basis (no IRC Section 481(a) adjustment), suggesting that the accelerated deduction retains its character as an amortization deduction. The Act makes new IRC Section 174A permanent for tax years beginning after December 31, 2024, which provides welcome certainty for taxpayers. Taxpayers should pay careful attention to the procedural requirements for IRC Section 174A. Businesses may elect to immediately expense up to $1 million of the cost of any IRC Section 179 property placed in service each tax year. If a business places in service more than $2.5 million of IRC Section 179 property in a tax year, the immediate expensing amount is reduced by the amount by which the IRC Section 179 property's cost exceeds $2.5 million. These amounts are indexed for inflation for tax years beginning after 2018. Thus, for tax years beginning in 2025, taxpayers may expense up to $1.25 million, and the phaseout threshold is $3.13 million. IRC Section 179 property includes tangible personal property or certain computer software that is purchased for use in the active conduct of a trade or business, as well as certain "qualified real property," which is defined as QIP and any of the following improvements to nonresidential real property placed in service after the date the property was first placed in service:
The Act increases the maximum amount a taxpayer may expense under IRC Section 179 from $1 million to $2.5 million, with the phaseout increasing to $4 million, for tax years beginning after 2024. The Act reduces the $2.5 million amount (but not below zero) by the amount by which the cost of the qualifying property placed in service during the tax year exceeds $4 million. Both expensing limitation amounts are indexed for inflation for tax years beginning after 2025. Given the capital-intensive nature of metals and mining businesses, this change is likely to be well received by the industry. The material increase in the expense amount may significantly impact strategic purchase decisions. The Act also contains a number of international provisions that could affect metals and mining companies with foreign operations. Below are the key substantive international provisions in the Act:
Metals and mining companies with international operations should evaluate how these changes affect their operations.
Document ID: 2025-1531 | ||||||
