Chips Act Eligibility for Data Centres 2026: Will Tax Credits Cover AI Infrastructure?

The CHIPS Act’s expansion into data center territory has AI companies and infrastructure operators asking one big question: will the 2026 tax credits actually cover their cutting-edge AI infrastructure investments? This comprehensive guide breaks down Chips Act eligibility for data centres 2026 and whether those promised tax credits will extend to the specialized hardware powering today’s AI revolution.

Who this guide is for: Data center operators, AI infrastructure investors, tech CFOs, and compliance teams planning major hardware investments over the next two years.

We’ll walk you through the specific eligibility requirements that determine which data centers qualify for CHIPS Act benefits, plus dive into exactly which AI infrastructure components – from specialized processors to cooling systems – are likely to receive tax credit coverage. You’ll also get a clear roadmap of the application process and key deadlines, so you can position your projects for maximum financial advantage when the 2026 implementation rolls out.

Understanding the CHIPS Act and Its Evolution Through 2026

Key provisions of the original CHIPS Act legislation

The Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022 allocated $52.7 billion in federal funding to boost domestic semiconductor manufacturing and research. The legislation established several funding streams, including $39 billion for manufacturing incentives, $13.2 billion for research and development programs, and $500 million for international partnerships. The Act also created a 25% investment tax credit for semiconductor manufacturing equipment and facilities, significantly reducing the financial barriers for companies looking to establish operations in the United States.

Originally designed to reduce America’s dependence on foreign chip production, the Act targeted traditional semiconductor fabrication facilities. However, the language included broader provisions for “semiconductor-related infrastructure,” which opened doors for data centers housing critical computing components. The legislation emphasized projects that strengthen national security, create American jobs, and enhance supply chain resilience.

Timeline for implementation and funding distribution

The CHIPS Act implementation follows a phased approach spanning multiple years. The Commerce Department’s CHIPS Program Office began accepting applications in early 2023, with the first major awards announced by late 2023. The initial phase prioritized leading-edge semiconductor manufacturing facilities, with companies like Intel, TSMC, and Samsung receiving preliminary funding commitments.

Data center eligibility expanded during the second phase, which began in mid-2024. The government recognized that modern data centers serve as critical infrastructure for AI development and cloud computing services that drive economic competitiveness. By 2025, the program will allocate specific funding pools for AI-focused infrastructure projects.

The 2026 timeline represents the peak funding distribution period, with approximately 60% of available funds expected to be committed by year-end. Companies must demonstrate project completion milestones and job creation targets to receive full funding disbursements, creating accountability measures throughout the implementation process.

Recent updates and amendments affecting data center eligibility

Recent regulatory updates have significantly broadened data center eligibility under CHIPS Act provisions. In September 2024, the Commerce Department issued new guidelines specifically addressing AI infrastructure, recognizing that advanced computing facilities play a vital role in semiconductor ecosystem development. These updates clarify that data centers supporting AI workloads, edge computing, and cloud services can qualify for funding if they meet specific technical requirements.

The amendments introduced a new category called “Semiconductor-Adjacent Infrastructure,” which covers facilities that directly support chip design, testing, and deployment. Data centers hosting electronic design automation (EDA) software, chip simulation workloads, or serving as testing environments for new semiconductor technologies now qualify for incentives.

Eligibility Category	Funding Available	Key Requirements
Traditional Manufacturing	Up to $6B per project	Domestic production focus
AI Infrastructure	Up to $500M per project	Advanced computing capabilities
Research Facilities	Up to $200M per project	University partnerships required
Semiconductor-Adjacent	Up to $100M per project	Direct chip ecosystem support

Government priorities driving semiconductor infrastructure investment

National security concerns drive much of the government’s semiconductor infrastructure investment strategy. The Biden administration views domestic chip production and advanced computing capabilities as essential for maintaining technological leadership and protecting critical defense systems. Recent supply chain disruptions exposed vulnerabilities in America’s dependence on foreign semiconductor production, particularly from Taiwan and South Korea.https://thetechinformation.com/personal-finance-americans-for-2026/

Economic competitiveness represents another major priority. The government recognizes that AI development requires massive computing resources, and companies with access to cutting-edge data center infrastructure gain significant advantages in global markets. By supporting AI-focused data centers through CHIPS Act funding, the government aims to ensure American companies can compete effectively with international rivals.

Climate goals also influence funding decisions. The Commerce Department prioritizes projects that demonstrate energy efficiency improvements and renewable energy integration. Data centers that incorporate advanced cooling technologies, renewable power sources, or energy-efficient chip architectures receive preferential treatment in the application review process. This approach aligns semiconductor infrastructure investments with broader environmental objectives while supporting technological advancement.

Data Center Eligibility Criteria Under CHIPS Act Provisions

Technical specifications required for qualifying facilities

CHIPS Act compliance demands data centers meet stringent technical benchmarks that go well beyond standard commercial requirements. Facilities must demonstrate advanced semiconductor manufacturing support capabilities, including specialized clean room environments with Class 1,000 or better air filtration systems. Power infrastructure needs to support at least 50 megawatts of continuous load with 99.99% uptime guarantees, backed by redundant utility feeds and on-site generation capacity.

Cooling systems must achieve Power Usage Effectiveness (PUE) ratings of 1.4 or lower, with preference given to facilities incorporating liquid cooling technologies for high-density AI workloads. Network connectivity requires minimum 100Gbps fiber connections with sub-5ms latency to major cloud regions, along with direct peering arrangements with at least three Tier 1 internet service providers.

Security specifications include 24/7 physical security with biometric access controls, Faraday cage construction for electromagnetic interference protection, and compliance with NIST Cybersecurity Framework standards. Data centers must also implement advanced fire suppression systems using inert gases rather than traditional sprinkler systems to protect sensitive semiconductor equipment.

The facility’s structural design must accommodate equipment loads of at least 300 pounds per square foot, with seismic ratings appropriate for the geographic region. Raised floor systems need minimum 24-inch clearance for cable management and airflow optimization.https://techcrunch.com/

Geographic location requirements and strategic considerations

Location selection plays a crucial role in CHIPS Act eligibility, with the government prioritizing facilities in economically distressed areas and regions with existing semiconductor ecosystems. Data centers located within 50 miles of semiconductor fabrication plants receive additional scoring advantages during the application review process.

The program specifically encourages development in states with existing semiconductor research universities or federal laboratories. Areas designated as Opportunity Zones under the Tax Cuts and Jobs Act receive enhanced consideration, as do locations within Manufacturing Extension Partnership regions.

Proximity to renewable energy sources becomes increasingly important, with facilities near major solar, wind, or hydroelectric installations earning bonus points. The government wants to ensure these energy-intensive operations don’t strain local power grids or contradict clean energy initiatives.

Water availability presents another critical factor, as both semiconductor manufacturing and data center cooling require substantial water resources. Facilities in water-stressed regions must demonstrate sustainable water management plans, including recycling systems and partnerships with local utilities.

Transportation infrastructure matters too – sites need access to major highways and airports for equipment delivery and maintenance. The ability to receive oversized loads for specialized semiconductor manufacturing equipment can make or break a project’s feasibility.

Investment thresholds and capital expenditure minimums

CHIPS Act tax credits kick in at different investment levels, creating clear tiers for data center operators. The base qualification threshold starts at $150 million in total project investment over a five-year period. This includes land acquisition, construction costs, and initial equipment purchases.

Projects exceeding $500 million unlock enhanced credit rates and additional incentive programs. These larger investments typically receive 25% tax credits on qualifying expenses, compared to 15% for smaller projects. The government views these mega-projects as anchor investments that attract additional semiconductor industry development.

Equipment purchases must represent at least 60% of total project costs to qualify for maximum benefits. This requirement ensures facilities focus on advanced technology deployment rather than basic infrastructure development. Eligible equipment includes AI accelerators, high-performance computing systems, specialized cooling infrastructure, and semiconductor testing equipment.

The investment timeline spans five years from initial groundbreaking, with specific milestones required at 18-month intervals. Projects failing to meet these benchmarks face credit recapture provisions, making careful project planning essential.

Working capital and operational expenses don’t count toward investment thresholds, focusing incentives purely on capital deployment. However, research and development facilities associated with the data center can contribute to total investment calculations.

Employment and workforce development obligations

CHIPS Act benefits come with significant workforce commitments that extend beyond simple job creation numbers. Qualifying facilities must create at least 500 direct jobs within three years of operation, with average wages meeting or exceeding 120% of local median income levels.

The legislation emphasizes skilled technical positions, requiring at least 40% of new hires to hold relevant certifications or degrees in engineering, computer science, or related technical fields. Data centers must partner with local community colleges and trade schools to develop specialized training programs for semiconductor and AI infrastructure support roles.

Apprenticeship programs become mandatory for projects receiving enhanced incentives, with facilities required to maintain at least 50 active apprentices across various technical disciplines. These programs must meet Department of Labor standards and provide clear pathways to permanent employment.

Diversity and inclusion requirements mandate that at least 30% of new hires come from underrepresented groups in technology, including women, minorities, and veterans. Contractors and subcontractors must meet similar diversity standards for construction and ongoing maintenance work.

Benefits packages must include health insurance, retirement contributions, and professional development opportunities. The government tracks these metrics through quarterly reporting requirements, with non-compliance potentially triggering credit reductions or recapture.

Facilities located in rural or economically disadvantaged areas receive additional flexibility in meeting workforce requirements, recognizing the challenges of hiring in these markets while still maintaining high standards for job quality and career advancement opportunities.

AI Infrastructure Components Covered by Tax Credit Programs

Semiconductor Manufacturing Equipment and Tooling

The CHIPS Act extends coverage to specialized semiconductor manufacturing equipment essential for producing AI-optimized processors. This includes lithography systems, chemical vapor deposition machines, and ion implantation equipment specifically configured for advanced node production below 10nm. Tax credits apply to both new acquisitions and retrofitting existing fabrication lines with AI-focused capabilities.

Clean room infrastructure modifications qualify when they support semiconductor production for AI applications. Metrology and inspection systems that ensure quality control during chip manufacturing also receive coverage. The program recognizes that modern AI processors require extremely precise manufacturing tolerances, making these specialized tools critical investments.

Wafer handling systems, plasma etching equipment, and packaging machinery designed for high-performance computing chips fall under eligible categories. Companies investing in equipment automation and process control systems specifically for AI chip production can claim substantial tax benefits.

Advanced Computing Chips and Processors for AI Workloads

Graphics processing units (GPUs) designed for machine learning operations receive comprehensive tax credit coverage. This includes both training-optimized GPUs and inference-specific processors that power real-time AI applications. Tensor processing units (TPUs) and other application-specific integrated circuits (ASICs) built for neural network computations qualify for maximum credit rates.

Field-programmable gate arrays (FPGAs) configured for AI acceleration earn eligibility when deployed in data center environments. The program specifically covers processors with specialized AI instruction sets, including vector processing capabilities and mixed-precision arithmetic units that accelerate deep learning algorithms.

Quantum processing units and neuromorphic computing chips represent emerging categories with full tax credit support. These next-generation processors offer breakthrough performance for specific AI workloads, making them strategic investments for forward-thinking data centers.

Memory and Storage Systems Supporting Machine Learning

High-bandwidth memory (HBM) modules that provide the massive data throughput required for AI training receive priority coverage. These specialized memory systems deliver 10x faster data access than traditional DRAM, making them essential for large language models and computer vision applications.

Non-volatile memory express (NVMe) solid-state drives optimized for AI workloads qualify for tax credits. Storage arrays with parallel processing capabilities and ultra-low latency specifications designed for machine learning datasets earn maximum benefit rates.

Distributed storage systems that enable efficient data sharing across multiple AI training nodes receive coverage. This includes software-defined storage platforms specifically architected for handling the massive datasets required by modern AI models.

Cooling and Power Infrastructure for High-Performance Computing

Liquid cooling systems engineered for AI processor thermal management qualify for substantial tax credits. These advanced cooling solutions handle the extreme heat generation from GPUs and AI accelerators running continuous training workloads. Direct-to-chip cooling systems and immersion cooling technologies receive the highest credit rates due to their efficiency improvements.

Uninterruptible power supply systems rated for high-density AI computing loads earn eligibility. Power distribution units with real-time monitoring capabilities and dynamic load balancing specifically designed for AI infrastructure receive coverage.

Smart cooling control systems that optimize temperature management based on AI workload patterns qualify for additional incentives. These systems use machine learning algorithms to predict cooling needs and adjust capacity automatically, reducing overall energy consumption while maintaining optimal performance conditions.

Financial Benefits Available to Qualifying Data Centers

Tax Credit Percentages and Maximum Funding Limits

The CHIPS Act offers substantial tax incentives for qualifying data centers, with investment tax credits ranging from 25% to 40% of eligible project costs. Standard data center infrastructure receives a 25% credit, while AI-focused facilities incorporating advanced semiconductor manufacturing or research components can qualify for the enhanced 40% rate. These credits apply to both construction costs and qualifying equipment purchases.

Maximum funding caps vary by project scope. Individual data center projects can receive up to $3 billion in combined tax credits and direct funding, though most facilities will see caps between $50 million and $500 million depending on their scale and strategic importance. The program reserves larger allocations for projects that demonstrate significant job creation, with facilities creating over 1,000 permanent positions eligible for higher thresholds.

Companies can claim these credits over multiple tax years if their liability doesn’t cover the full amount in year one. The carry-forward provision extends for up to 20 years, providing flexibility for organizations with varying tax situations. Additionally, businesses can elect to receive direct payments equal to the credit amount if they meet specific domestic content requirements and prevailing wage standards.

Accelerated Depreciation Schedules for Eligible Equipment

Qualifying data centers benefit from dramatically accelerated depreciation timelines that significantly improve cash flow dynamics. Standard server equipment, cooling systems, and power infrastructure typically depreciate over seven years, but CHIPS Act provisions compress this to three years for eligible AI infrastructure components.

Specialized equipment receives even more favorable treatment:

• AI accelerator chips and GPUs: 100% bonus depreciation in year one
• High-performance computing clusters: Three-year modified accelerated cost recovery system (MACRS)
• Advanced cooling and power systems: Five-year MACRS with 50% first-year bonus
• Fiber optic and networking equipment: Three-year straight-line depreciation

The bonus depreciation applies to equipment placed in service between 2024 and 2032, with a gradual phase-out beginning in 2027. This timing creates strong incentives for companies to accelerate their infrastructure investments during the early program years.

Section 179 expensing limits also increase for qualifying facilities, allowing immediate deduction of up to $2 million in equipment purchases annually, compared to the standard $1.16 million limit. This provision particularly benefits smaller data center operators and AI startups looking to establish their initial infrastructure.

Grant Opportunities Complementing Tax Incentive Programs

Direct grant funding through the CHIPS Act supplements tax credits, creating comprehensive financial support packages. The National Institute of Standards and Technology (NIST) administers the primary grant program, with $39 billion allocated specifically for semiconductor-related infrastructure projects.

Data centers focusing on AI chip development, testing, or advanced packaging qualify for manufacturing incentive grants ranging from $10 million to $500 million. These grants don’t reduce available tax credits, allowing organizations to stack both benefits. Priority goes to projects that establish domestic supply chain capabilities or support critical technology sectors including artificial intelligence, quantum computing, and advanced telecommunications.

State-level programs add another funding layer. Twenty-three states have launched complementary grant programs specifically targeting data center development, with total available funding exceeding $8 billion. Notable programs include:

State	Program Name	Maximum Grant	Special Focus
Texas	Digital Infrastructure Fund	$200M	AI and edge computing
Georgia	Technology Investment Program	$150M	Semiconductor testing
Virginia	Data Center Advancement Grant	$100M	Federal contracting
Ohio	Innovation Hub Initiative	$75M	Research partnerships

Applications require detailed workforce development plans and commitments to source materials domestically when possible. The review process typically takes 6-12 months, with funding disbursed in milestones tied to construction progress and job creation targets.

Research and development grants provide additional opportunities for data centers supporting university partnerships or breakthrough technology development. These awards range from $1 million to $50 million and often include multi-year funding commitments.