New Tax Breaks for U.S.-Made Magnets: The Rare Earth Magnet Security Act Kicks Off in 2025

The "Rare Earth Magnet Security Act of 2025" is all about bringing magnet production back home. Starting in 2025, companies get a tax break for every kilogram of rare earth magnets they make and sell here in the U.S. These aren't your fridge magnets – we're talking about the powerful kind used in everything from electric vehicles to wind turbines and even fighter jets.

Making Magnets, Getting Credits

The core of the bill is a new tax credit (Section 45BB of the Internal Revenue Code, if you want to get technical). Companies get $20 back for every kilogram of magnets made in the USA. But here's the kicker: if at least 90% of the materials inside those magnets are also from the U.S., that credit jumps to $30 per kilogram. That's a big incentive to source locally. Think of a wind turbine manufacturer: if they're buying U.S.-made magnets with mostly U.S.-sourced materials, they're saving a significant amount on their tax bill, potentially making their turbines more competitive.

The Clock is Ticking

This isn't a forever deal. The full credit starts phasing out after December 31, 2034. In 2035, companies get 70% of the credit. By 2036 and 2037, it's down to 35%. After that, it's gone. This creates a sense of urgency – companies need to get their U.S. operations up and running relatively quickly to take full advantage. For example, a small business making specialized motors might need to invest in new equipment to use these magnets. Knowing the credit won't last forever could influence their decision on whether, and how quickly, to make that investment.

Sourcing Matters (Mostly)

Here's where things get a little tricky. The bill says you can't get the credit if any of the materials in your magnet come from a "non-allied foreign nation." These countries will be specifically named. However, there's a temporary exception: until January 1, 2027, you can still get the credit even if your magnet contains dysprosium, terbium, samarium, or gadolinium from those countries. This gives companies a little breathing room to adjust their supply chains, especially since these specific materials might be harder to source domestically right away.

Special Cases

There's also a provision for "eligible manufacturers" who get grants or contracts from the Department of Energy or Defense. If they commit to building magnet factories here, the government can waive some of the technical requirements for the magnets. This is likely aimed at boosting production for critical defense and energy applications. The bill also allows companies to get a direct payment equal to the tax credit. This can be a huge deal for smaller businesses or startups that might not have a big tax liability to offset.

Real-World Ripple Effects

This bill could have a significant impact on several industries. Electric vehicle makers, for example, rely heavily on rare earth magnets. A domestic supply chain could make them less vulnerable to global price swings and supply disruptions. It could also mean more jobs in U.S. manufacturing, from mining the raw materials to assembling the finished magnets. However, it is important to note that the 'non-allied' designation could cause trade issues down the line. The temporary exceptions and waivers are also something to keep an eye on, as they could be exploited.