This bill establishes a new tax credit to incentivize the domestic production of high-performance rare earth magnets, aiming to strengthen the U.S. supply chain for these critical materials. Taxpayers can claim a credit of $20 per kilogram for magnets manufactured or produced in the United States and sold to an unrelated person. An enhanced credit of $30 per kilogram is available if at least 90 percent by weight of the magnet's component rare earth materials are also produced within the United States. This credit is part of the general business credit and applies to taxable years beginning after December 31, 2024.

To ensure supply chain security, the bill imposes a significant restriction: no credit is allowed if any component rare earth material originates from a non-allied foreign nation, though a temporary waiver exists for specific materials until 2027. An exception to this restriction applies to materials seized from non-allied nations during wartime by Ukraine or designated allied countries. The credit is subject to a phase-out schedule, reducing to 70 percent in 2035, 35 percent in 2036-2037, and expiring completely after December 31, 2037. Furthermore, the Secretary may grant exceptions to magnet coercivity requirements for "eligible manufacturers" who receive government grants and commit to domestic production facilities demonstrating national security merit.

The legislation precisely defines a "rare earth magnet" by its intrinsic coercivity and specific alloy compositions, such as neodymium, iron, and boron, or samarium and cobalt. It also clarifies "component rare earth material" to include elements like neodymium, dysprosium, and cobalt. For administrative ease, taxpayers can elect to receive the credit as a direct payment against their tax liability. These provisions aim to bolster domestic manufacturing capabilities for these strategically important magnets.