Biodiesel Tax Credit

The federal government has several tax incentives available to promote the production and use of biofuels. The two major incentives are the biodiesel tax credit and the cellulosic biofuel producer credit. The tax credits are intended to offset the cost of producing and blending biofuels. The biodiesel tax credit is an income tax credit that reduces a person’s total tax liability. The cellulosic biofuel producer credit is an excise tax credit. The biodiesel tax credit is worth $1 per gallon of pure biodiesel or renewable diesel blended with petroleum diesel fuel. The blender’s excise tax credit can be claimed immediately against the fuel tax liability of the taxable year. In addition, the unused portion of the credit may be carried forward to future taxable years. The biodiesel tax credit can be taken against the taxpayer’s fuel taxes and excise tax liability. The credit can also be carried forward for up to three years.

The Biodiesel Tax Credit has been an important factor in the biodiesel industry’s growth in the United States. According to the National Biodiesel Board, the tax credit has helped to create thousands of jobs in the biodiesel industry and has supported the development of new technologies and production facilities. In addition, the tax credit has encouraged the use of biodiesel in a wide range of applications, including transportation, heating, and power generation.

The Biodiesel Tax Credit has faced several challenges in recent years, including expiration and retroactive renewal. The tax credit expired at the end of 2017 and was not renewed until the end of 2019. The retroactive renewal created uncertainty for producers and blenders, as they were unsure whether the credit would be renewed and whether it would apply to their past activities. The retroactive renewal also created administrative challenges for the IRS, as it had to process a large number of amended tax returns and refund claims.

Who Can Claim The Biodiesel Tax Credit?

A taxpayer is eligible to claim the biodiesel tax credit if they are an individual, partnership, or S-corporation filing Schedule C or a corporation or trust filing Form 1040. A taxpayer who receives a share of the biodiesel tax credit through a pass-through entity must file an IRS Form K-1, Kentucky Schedule K, or Kentucky Schedule ITC with their return.  Blenders of taxable fuel must generally be registered with the IRS to claim this credit. This credit can be claimed on Form 8864, which is filed along with the taxpayer’s fuel tax return. This credit is based on the amount of the fuel sold and is limited to $5,000 but can be carried forward for 3 years. In addition, this credit is only available to producers who produce a minimum of 2 million gallons of agri-biodiesel or green diesel per year. A business with a valid taxable fuel registration certificate and a valid producer identification number can only claim this credit.

Individuals who own shares of a pass-through entity that invest in a biodiesel facility may receive their share of the credit directly from the entity. In this case, the credit is calculated at the entity level and then divided among the partners, shareholders, or members in proportion to their ownership interest. The credit may not exceed $250,000. The Biodiesel Tax Credit provides an important economic incentive for the production and use of biodiesel, which has significant environmental benefits. The tax credit has been instrumental in the biodiesel industry’s growth in the United States, creating jobs and supporting the development of new technologies and facilities. However, the tax credit has faced challenges in recent years, and its future is uncertain. The continued support and renewal of the tax credit will be essential to ensure the growth and success of the biodiesel industry in the years to come.