Tax Incentives

For Ethanol Production, Use and Sale

Various tax credits and other incentives are made available by the U.S. government for the production, blending and/or sale of ethanol and ethanol blends. The following lists each such tax incentive available, and briefly describes its parameters.

Second Generation Biofuel Producer Tax Credit

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 U.S. Environmental Protection Agency 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 between January 1, 2009, and December 31, 2014, for use in the United States may be eligible. 

This incentive originally expired on December 31, 2013, but was retroactively extended through December 31, 2014 by Public Law 113-295.  The RFA is currently working with its friends and champions in Congress to reform and extend this credit to make it more effective in driving the expansion and commercialization of the second generation biofuel industry.

Second Generation Biofuel Production Property Depreciation Allowance

An owner of a second generation biofuel production plant may be eligible for a 50% special depreciation allowance to recover the cost of qualified property. To be eligible, the plant must function solely for the purpose of second generation biofuel production, be put into service by the current owner after December 20, 2006, and before January 1, 2015, and fuel produced must meet the U.S. Environmental Protection Agency fuel and fuel additive registration requirements. 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.

This incentive originally expired on December 31, 2013, but was retroactively extended through December 31, 2014, by Public Law 113-295.  The RFA is currently working with its friends and champions in Congress to reform and extend this credit to make it more effective in driving the expansion and commercialization of the second generation biofuel industry.

Alternative Fuel Mixture Excise Tax Credit

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: 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. 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. This tax credit is applicable to fuel sold or used between January 1, 2005, and December 31, 2014.

This incentive originally expired on December 31, 2013, but was retroactively extended through December 31, 2014, by Public Law 113-295.  The RFA is currently working with its friends and champions in Congress to reform and extend this important tax credit.

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. 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, 2014, 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.

This incentive originally expired on December 31, 2013, but was retroactively extended through December 31, 2014, by Public Law 113-295.  The RFA is currently working with its friends and champions in Congress to reform and extend this credit to make it more effective in growing ethanol infrastructure and expanding consumer choice at the retail level.

Page last updated February 2015