• Alternative Fuel Tax Credit
• Alternative Motor Vehicle Credit
• Alternative Fuel Infrastructure Tax Credit
• Hybrid Motor Vehicle Credit
• Biodiesel and Ethanol (VEETC) Tax Credit
• Qualified Plug-In Electric Drive Motor Vehicle Tax Credit
Alternative Fuel Tax Credit – This tax credit has expired, but Congress is working to extend it.
(Internal Revenue Code (IRC), §§ 6426, 6427) Current law provides a 50 cent tax credit for CNG (per 121 cubic feet) or LNG gallon when used as a transportation fuel. Credit extended to 12/31/2011 by Pub. L. No. 111-312 (Dec. 2010); credit made retroactive for 2010.
Update: 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: compressed natural gas (based on 121 cubic feet), liquefied natural gas, liquefied petroleum gas, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass. 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 the Internal Revenue Service (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. This tax credit is applicable to fuel sold or used between January 1, 2005, and December 31, 2013. (Reference Public Law 112-240 and 26 U.S. Code 6426)
Alternative Motor Vehicle Credit
This tax credit has expired, but Congress is working to extend it.
Section 1341 of the Energy Policy Act of 2005 provides a tax credit to buyers of new alternative fuel vehicles placed in service as an alternative fuel vehicle after January 1, 2006. The legislation provides for a tax credit equal to 50% of the incremental cost of the vehicle, plus an additional 30% of the incremental cost for vehicles with near-zero emissions (SULEV or Bin 2 for vehicles <14,001 lb GVWR). The IRS has issued two notices to establish rules for manufacturers and qualified vehicle buyers to claim the credit. A Tax Credit Table has information on certified vehicles and available credits.
The credit is available on the purchase of light-, medium-, and heavy-duty vehicles and fuel-cell, hybrid, and dedicated natural gas, propane, and hydrogen vehicles. Light-duty lean-burn diesel vehicles are also eligible.
Vehicles are subject to the following incremental cost limitations:
- $5,000: 8,500 GVWR or lighter
- $10,000: 8,501 – 14,000 GVWR
- $25,000: 14,001 – 26,000 GVWR
- $40,000: 26,001 GVWR and heavier
For non-tax-paying entities, the credit can be passed back to the vehicle seller. The tax credit can be applied to vehicle purchases made after December 31, 2005. The credit expires December 31, 2010.
Alternative Fuel Infrastructure Tax Credit
Fueling equipment for natural gas, liquefied petroleum gas (propane), electricity, E85, or diesel fuel blends containing a minimum of 20% biodiesel installed between January 1, 2006, and December 31, 2013, is eligible for a tax credit of 30% of the cost, not to exceed $30,000. 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, 2013, may receive a tax credit of up to $1,000. Unused credits that qualify as general business tax credits, as defined by the Internal Revenue Service (IRS), may be carried backward one year and carried forward 20 years. (Reference Public Law 112-240 Section 402 and 26 U.S. Code 30C and 38)
The initial credits expired, but the above extended many of the provisions through December 31, 2013.
Section 1342 of the Energy Policy Act of 2005 provides a tax credit equal to 30% of the of cost alternative refueling property, up to $30,000 for business property. Qualifying alternative fuels are natural gas, propane, hydrogen, E85, or biodiesel mixtures of B20 or more. Buyers of residential in-home refueling equipment can receive a tax credit for $1,000. For non-tax-paying entities, the credit can be passed back to the equipment seller. The credit is effective on equipment put into service after December 31, 2005. It expires December 31, 2009 (hydrogen property credit expires in 2014).
This legislation also extends the Tax Deduction Timeline that was established by EPAct 1992, Section 179, and extended by the Working Families Tax Relief Act of 2004.
In May 2006, the Internal Revenue Service (IRS) published Form 8911, which provides a mechanism to claim the infrastructure tax credit. Owners who install qualified refueling property on multiple sites can utilize the credit for each property. The instructions define what is considered qualified property and the value of the credit. See IRS Form 8911.
Hybrid Motor Vehicle Credit
This tax credit has expired.
Section 1341 of the Energy Policy Act of 2005 provides a tax credit for light-duty hybrid vehicles (<8,501 lb GVWR) based on their improved fuel economy and their life-time fuel savings potential. The IRS will certify vehicles for the credit and publish qualifying credit amounts as vehicles are certified. The Current Tax Credit Table has the most recent information from the IRS.
The fuel economy portion of the credit is based on the following efficiency gains over model year 2002 baselines.
- 125%-149%: $400
- 150% -174%: $800
- 175%-199%: $1,200
- 200%-224%: $1,600
- 225%-249%: $2,000
- 250%+: $2,400
The conservation credit increases the fuel economy credit based on the following lifetime fuel savings:
- 1,200-1,799 gal: $250
- 1,800-2,399 gal: $500
- 2,400-2,999 gal: $750
- 3,000 gal+: $1,000
To qualify for the credits, the vehicles must meet at least Bin 5 standards if they are up to 6,000 lb GVWR, or Bin 8 standards if the vehicles are 6,001 lb-8,500 lb GVWR.
Heavy-duty hybrid vehicles are subject to the following incremental cost limitations:
- <14,001 GVWR: $7,500
- 14,001-26,000 GVWR: $15,000
- 26,001+ GVWR: $30,000
This tax credit replaces the tax deduction previously available to purchasers under the Clean Fuel Vehicle Property guidance. This tax credit expires December 31, 2010.
The IRS issued guidance to automobile manufacturers in January 2006. Specifically, this notice provides procedures for a vehicle manufacturer to certify to the Internal Revenue Service both that the vehicle meets certain requirements for the credit and information to calculate the amount of the credit allowable with respect to that vehicle.
Biodiesel and Ethanol (VEETC) Tax Credit
The American Jobs Creation Act of 2004 (Public Law 108-357) created tax incentives for biodiesel fuels and extended the tax credit for fuel ethanol. The biodiesel credit is available to blenders/retailers beginning in January 2005. It also established the Volumetric Ethanol Excise Tax Credit (VEETC), which provides ethanol blenders/retailers with $.51 per pure gallon of ethanol blended or $.0051 per percentage point of ethanol blended (i.e., E10 is eligible for $.051/gal; E85 is eligible for $.4335/gal). The incentive is available until December 31, 2011.
Section 1344 of the Energy Policy Act of 2005 extended the tax credit for biodiesel producers through 2008. The credits are $.51 per gallon of ethanol at 190 proof or greater, $1.00 per gallon of agri-biodiesel, and $.50 per gallon of waste-grease biodiesel. If the fuel is used in a mixture, the credit amounts to $.0051 per percentage point ethanol or $.01 per percentage point of agri-biodiesel used or $.0050 per percentage point of waste-grease biodiesel (i.e. E100 is eligible for $.51 per gallon) For more information, visit IRS Form 637 and IRS publication 510.
Qualified Plug-In Electric Drive Motor Vehicle Tax Credit
A tax credit is available for the purchase of a new qualified plug-in electric drive motor vehicle that draws propulsion using a traction battery that has at least four 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, and meets specified emission standards. The minimum credit amount is $2,500, and the credit may be up to $7,500, based on each vehicle’s traction battery capacity and the gross vehicle weight rating. The credit will begin to be phased out for each manufacturer in the second quarter following the calendar quarter in which a minimum of 200,000 qualified plug-in electric drive vehicles have been sold by that manufacturer for use in the United States. This tax credit applies to vehicles acquired after December 31, 2009. For more information, see the Internal Revenue Service (IRS) Plug-In Electric Vehicle Credit website and IRS Form 8936, which is available via the IRS website.
A credit is also available for the purchase of a new qualified two- or three-wheeled plug-in electric drive vehicle that draws propulsion using a traction battery that has at least 2.5 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, and applies to vehicles acquired between January 1, 2012, and December 31, 2013. (Reference Public Law 112-240 and 26 U.S. Code 30D)