Alternative Fuels Tax Credit

What Is the Alternative Fuels Tax Credit?

The alternative fuels credit is a non-refundable tax credit granted to taxpayers who use non-liquor alternative fuels that are either sold monetarily by the taxpayer or utilized in the taxpayer's vehicles for business.

Understanding the Alternative Fuels Tax Credit

The alternative fuels credit, which is nitty gritty in the Internal Revenue Code (IRC), originated from the possibility that the U.S. ought to reduce its reliance on imported oil and embrace advanced fuels and vehicle innovations.

Especially persuasive in the development of the IRC's perspectives on alternative fuels were the American Jobs Creation Act of 2004 (Jobs Bill), the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (Highway Bill), and the Energy Policy Act of 2005 (EPAct 2005). The fuel credits for biodiesel or renewable diesel credits, as well as fuel combinations, including ethanol/gasoline mixes, were laid out in the Volumetric Excise Tax Credit (VEETC) portion of the Jobs Bill. They are intended to give incentives to create, sell, and utilize these fuels.

The Internal Revenue Service believes alternative fuels to be liquefied petroleum gas (LPG), compacted natural gas (CNG), liquefied natural gas (LNG), liquefied hydrogen, liquid fuel derived from coal (counting peat) through the Fischer-Tropsch process, liquid hydrocarbons derived from biomass, and P-Series fuels. Note that hydrocarbons incorporate liquids that contain oxygen, hydrogen, and carbon, and that liquid hydrocarbons derived from biomass incorporate ethanol, biodiesel, and renewable diesel.

Nonetheless, the IRS does exclude these fuels in the alternative fuels category. Tax incentives for these fuels are covered under the fuel categories of gasoline and diesel, separately.

This credit is set to lapse on December 31, 2020 except if Congress broadens the credit.

A $0.50 per gallon credit is available for natural gas, liquefied hydrogen, propane, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compacted or liquefied gas derived from biomass. For propane and natural gas sold, the tax credit depends on the gasoline gallon equivalent (GGE) or diesel gallon equivalent (DGE).

Alternative Fuels Credit Availability

Among those that might have the option to exploit the alternative fuels credit are fleet administrators, fuel suppliers, and fuel blenders. To fit the bill for the tax credit, fuel arrangement, how the fuel is utilized, and the excise tax payment methodology must be plainly outlined. Suppliers and blenders must likewise register with the Internal Revenue Service. Forms 8849, 4136, 6478, or 8864 can be utilized to make a claim or a refund for liquor, biodiesel or renewable diesel, or alternative fuel used to create a combination.