Federal Alternative Fuel Tax Credits Summary

Please see below for an overview of all the federal alternative fuel tax credits that have been retroactively extended. For the latest information on laws and incentives, we recommend periodically checking the AFDC Laws and Incentives database here as it’s frequently updated.

For an overview of all the federal alternative fuel tax credits that have been retroactively extended, visit the Alternative Fuels Data Center’s (AFDC) Federal Laws and Incentives page here. All the descriptions with an “updated 12/23/2019,” flag were retroactively extended by Public Law 116-94 (https://www.congress.gov/public-laws/116th-congress). There were 10 alternative fuel tax credit updates, which are listed below.

For guidance on retroactive filing, please refer to the Internal Revenue Service (IRS) Forms and Publications website here or contact the IRS (800-829-1040) or Excise Tax Branch, IRS Office of Chief Counsel at 202-317-6855.

Alternative Fuel Excise Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2020, by Public Law 116-94.

A tax incentive is available for alternative fuel that is sold for use or used as a fuel to operate a motor vehicle. A tax credit in the amount of $0.50 per gallon is available for the following alternative fuels: natural gas, liquefied hydrogen, propane, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass. For propane and natural gas sold after December 31, 2015, the tax credit is based on the gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE). For taxation purposes, one GGE is equal to 5.75 pounds (lbs.) of propane and 5.66 lbs. of compressed natural gas. One DGE is equal to 6.06 lbs. of liquefied natural gas.

For an entity to be eligible to claim the credit they must be liable for reporting and paying the federal excise tax on the sale or use of the fuel in a motor vehicle. Tax exempt entities such as state and local governments that dispense qualified fuel from an on-site fueling station for use in vehicles qualify for the incentive. Eligible entities must be registered with IRS. The incentive must first be taken as a credit against the entity’s alternative fuel tax liability; any excess over this fuel tax liability may be claimed as a direct payment from the IRS. The tax credit is not allowed if an incentive for the same alternative fuel is also determined under the rules for the ethanol or biodiesel tax credits.

For more information about claiming the credit, see IRS Form 4136, which is available on the IRS Forms and Publications website. (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 6426)

Alternative Fuel Infrastructure Tax Credit

NOTE: This incentive originally expired on December 31, 2016, but was retroactively extended through December 31, 2020, by Public Law 116-94.

Fueling equipment for natural gas, propane, liquefied hydrogen, electricity, E85, or diesel fuel blends containing a minimum of 20% biodiesel installed through December 31, 2020, is eligible for a tax credit of 30% of the cost, not to exceed $30,000. Permitting and inspection fees are not included in covered expenses. Fueling station owners who install qualified equipment at multiple sites are allowed to use the credit towards each location. Consumers who purchased qualified residential fueling equipment prior to December 31, 2020, may receive a tax credit of up to $1,000. Unused credits that qualify as general business tax credits, as defined by the IRS, may be carried backward one year and carried forward 20 years. For more information about claiming the credit, see IRS Form 8911, which is available on the IRS Forms and Publications website (https://apps.irs.gov/app/picklist/list/formsPublications.html). (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, 26 U.S. Code 30C and 38, and IRS Notice 2007-43)

Alternative Fuel Mixture Excise Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was modified and retroactively extended through December 31, 2020, by Public Law 116-94

An alternative fuel blender that is registered with the IRS may be eligible for a tax incentive on the sale or use of the alternative fuel blend (mixture) for use as a fuel in the blender’s trade or business. The credit is in the amount of $0.50 per gallon of alternative fuel used to produce a mixture containing at least 0.1% gasoline, diesel, or kerosene. Qualified alternative fuels are liquefied hydrogen, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and liquid fuel derived from biomass. The incentive must first be taken as a credit against the blender’s alternative fuel tax liability; any excess over this fuel tax liability may be claimed as a direct payment from the IRS. The tax credit is not allowed if an incentive for the same alternative fuel is also determined under the rules for the ethanol or biodiesel tax credits.

For more information about claiming the credit, see IRS Form 4136, which is available on the IRS Forms and Publications website (https://apps.irs.gov/app/picklist/list/formsPublications.html). (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 6426)

Biodiesel Income Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2022, by Public Law 116-94.

A taxpayer that delivers pure, unblended biodiesel (B100) into the tank of a vehicle or uses B100 as an on-road fuel in their trade or business may be eligible for an incentive in the amount of $1.00 per gallon of biodiesel, agri-biodiesel, or renewable diesel. If the biodiesel was sold at retail, only the person that sold the fuel and placed it into the tank of the vehicle is eligible for the tax credit. The incentive is allowed as a credit against the taxpayer’s income tax liability. Claims must include a copy of the certificate from the registered biodiesel producer or importer that: identifies the product; specifies the product’s biodiesel, agri-biodiesel, and/or renewable diesel content; confirms that the product is properly registered as a fuel with the U.S. Environmental Protection Agency (EPA); and confirms that the product meets the requirements of ASTM specification D6751. Renewable diesel is defined as liquid fuel derived from biomass that meets EPA’s fuel registration requirements and ASTM specifications D975 or D396; the definition of renewable diesel does not include any fuel derived from co-processing biomass with a feedstock that is not biomass.

For more information about claiming the credit, see IRS Forms 637 and 8864, which are available on the IRS Forms and Publications website (https://apps.irs.gov/app/picklist/list/formsPublications.html). For information about registering with the EPA, see the EPA Fuels Registration, Reporting, and Compliance Help website. (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 40A)

Biodiesel Mixture Excise Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2022, by Public Law 116-94.

A biodiesel blender that is registered with the IRS may be eligible for a tax incentive in the amount of $1.00 per gallon of pure biodiesel, agri-biodiesel, or renewable diesel blended with petroleum diesel to produce a mixture containing at least 0.1% diesel fuel. Only blenders that have produced and sold or used the qualified biodiesel mixture as a fuel in their trade or business are eligible for the tax credit. The incentive must first be taken as a credit against the blender’s fuel tax liability; any excess over this tax liability may be claimed as a direct payment from the IRS. Claims must include a copy of the certificate from the registered biodiesel producer or importer that: identifies the product; specifies the product’s biodiesel, agri-biodiesel, and/or renewable diesel content; confirms that the product is properly registered as a fuel with the EPA; and confirms that the product meets the requirements of ASTM specification D6751. Renewable diesel is defined as liquid fuel derived from biomass that meets EPA’s fuel registration requirements and ASTM specifications D975 or D396; the definition of renewable diesel does not include any fuel derived from co-processing biomass with a feedstock that is not biomass.

Fuel Cell Motor Vehicle Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2020, by Public Law 116-94.

A tax credit of up to $8,000 is available for the purchase of qualified light-duty fuel cell vehicles, depending on the vehicle’s fuel economy. Tax credits are also available for medium- and heavy-duty fuel cell vehicles; credit amounts are based on vehicle weight. Vehicle manufacturers must follow the procedures as published in Notice 2008-33 (http://www.irs.gov/pub/irs-drop/n-08-33.pdf) to certify to the IRS that a vehicle meets certain requirements to claim the fuel cell vehicle credit. Notice 2008-33 also provides guidance to taxpayers about claiming the credit. For more information about claiming the credit, see IRS Form 8910, which is available on the IRS Forms and Publications website (https://apps.irs.gov/app/picklist/list/formsPublications.html). (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 30B)

Qualified Two-Wheeled Plug-In Electric Drive Motor Vehicle Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2020, by Public Law 116-94.

A credit is available for the purchase of a new qualified two-wheeled plug-in electric drive vehicle that draws propulsion using a traction battery that has at least 2.5 kilowatt hours (kWh) of capacity, uses an external source of energy to recharge the battery, has a gross vehicle weight rating of up to 14,000 pounds, is manufactured primarily for use on public roadways, and can drive at least 45 miles per hour. The credit is for 10% of the cost of the qualified vehicle, up to $2,500. For more information about claiming the credit, see the IRS Plug-In Electric Vehicle Credit website (https://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credit-IRC-30-and-IRC-30D) and IRS Form 8936, which is available on the IRS Forms and Publications website (https://apps.irs.gov/app/picklist/list/formsPublications.html). (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 30D)

Second Generation Biofuel Plant Depreciation Deduction Allowance

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2020, by Public Law 116-94.

A second generation biofuel production plant placed into service between December 31, 2017, and December 31, 2020, may be eligible for an additional depreciation tax deduction allowance equal to 50% of the adjusted basis of the property. The plant must be solely used to produce second generation biofuel and is only eligible for the depreciation allowance for the first year in operation. Second generation biofuel is defined as liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable basis or any cultivated algae, cyanobacteria, or lemna. (Reference Public Law 116-94, Public Law 112-240 and 26 U.S. Code 168)

Second Generation Biofuel Producer Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2020, by Public Law 116-94.

A second generation biofuel producer that is registered with the IRS may be eligible for a tax incentive in the amount of up to $1.01 per gallon of second generation biofuel that is: sold and used by the purchaser in the purchaser’s trade or business to produce a second generation biofuel mixture; sold and used by the purchaser as a fuel in a trade or business; sold at retail for use as a motor vehicle fuel; used by the producer in a trade or business to produce a second generation biofuel mixture; or used by the producer as a fuel in a trade or business. If the second generation biofuel also qualifies for alcohol fuel tax credits, the credit amount is reduced to $0.46 per gallon for biofuel that is ethanol and $0.41 per gallon if the biofuel is not ethanol. Second generation biofuel is defined as liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable basis or any cultivated algae, cyanobacteria, or lemna. To qualify, fuel must also meet the EPA fuel and fuel additive registration requirements. Alcohol with a proof of less than 150, fuel with a water or sediment content of more than 4%, and fuel with an ash content of more than 1% are not considered second generation biofuels. The incentive is allowed as a credit against the producer’s income tax liability. Under current law, only qualified fuel produced in the United States for use in the United States may be eligible. For more information about claiming the credit, see IRS Forms 637 and 6478, which are available on the IRS Forms and Publications website (https://apps.irs.gov/app/picklist/list/formsPublications.html). (Reference Public Law 116-94, Public Law 115-123, Public Law 114-113, and 26 U.S. Code 40)

Small Agri-Biodiesel Producer Tax Credit

NOTE: This incentive originally expired on December 31, 2017, but was retroactively extended through December 31, 2020, by Public Law 116-94.

A small agri-biodiesel producer that is registered with the IRS may be eligible for a tax incentive in the amount of $0.10 per gallon of agri-biodiesel that is: sold and used by the purchaser in the purchaser’s trade or business to produce an agri-biodiesel and diesel fuel mixture; sold and used by the purchaser as a fuel in a trade or business; sold at retail for use as a motor vehicle fuel; used by the producer in a trade or business to produce an agri-biodiesel and diesel fuel mixture; or used by the producer as a fuel in a trade or business. A small producer is one that has, at all times during the tax year, not more than 60 million gallons of productive capacity of any type of agri-biodiesel. Agri-biodiesel is defined as diesel fuel derived solely from virgin oils, including esters derived from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, and camelina, and from animal fats; renewable diesel does not qualify for the credit. The incentive applies only to the first 15 million gallons of agri-biodiesel produced in a tax year is allowed as a credit against the producer’s income tax liability.. For more information, see IRS Publication 510 and IRS Forms 637 and 8864, which are available via the IRS Forms and Publications website (https://apps.irs.gov/app/picklist/list/formsPublications.html). (Reference Public Law 116-94, Public Law 111-312, Section 701; and 26 U.S. Code 40A)

March 17, 2020/by Kelly Barrett