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.

Cellulosic Biofuel Producer Tax Credit:

A cellulosic 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 cellulosic biofuel that is: sold and used by the purchaser in the purchaser’s trade or business to produce a cellulosic biofuel mixture; sold and used by the purchaser as a fuel in 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 cellulosic biofuel mixture; or used by the producer as a fuel in a trade or business.  If the cellulosic 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. Cellulosic biofuel is defined as liquid fuel produced from any lignocellulosic or hemicellulosic matter that is available on a renewable basis, and meets the U.S. Environmental Protection Agency fuel and fuel additive registration requirements. Alcohol with a proof of less than 150 is not considered cellulosic biofuel. 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, 2013, for use in the United States may be eligible. The RFA is currently working with its friends and champions in Congress to secure a multi-year extension of this important tax credit.

Special Depreciation Allowance for Cellulosic Biofuel Plant Property:

A taxpayer may take a depreciation deduction of the adjusted basis of a new cellulosic biofuel plant in the year it is put in service. Any portion of the cost financed through tax-exempt bonds is exempted from the depreciation allowance. Before amendment by P.L. 110-343, the accelerated depreciation applied only to cellulosic ethanol plants that break down cellulose through enzymatic processes — the amended provision applies to all cellulosic biofuel plants. The credit is available to any enzymatic cellulosic ethanol plant acquired after December 20, 2006, and placed in service before January 1, 2014. Any plant that had a binding contract for acquisition before December 20, 2006, does not qualify. The RFA is currently working with its friends and champions in Congress to secure a multi-year extension of this important tax incentive.

Alternative Fuel Mixture Credit:

The alternative fuel mixture credit is the product of 50 cents and the number of gallons of alternative fuel used by the taxpayer in producing any alternative fuel mixture for sale or use in a trade or business of the taxpayer.  “Alternative fuel mixture” means a mixture of alternative fuel and taxable fuel that is sold by the taxpayer producing such mixture to any person for use as a fuel, or used as a fuel by the taxpayer producing such mixture.  This subsection does not apply to any sale or use for any period after September 30, 2011 (September 30, 2014, in the case of any sale or use involving liquefied hydrogen). The RFA is currently working with its friends and champions in Congress to secure a multi-year extension of the Alternative Fuel Mixture Credit.

Alternative Fuel Infrastructure Tax Credit:

A tax credit is available for the cost of installing alternative fueling equipment placed into service after December 31, 2005. Qualified alternative fuels are natural gas, liquefied petroleum gas, hydrogen, electricity, E85, or diesel fuel blends containing a minimum of 20% biodiesel. The credit amount is up to 30% of the cost, not to exceed $30,000, for equipment placed into service before January 1, 2009 and on, or after, January 1, 2011. The credit amount is up to 50% not to exceed $50,000, for equipment placed into service between January 1, 2009 and December 31, 2010. Fueling station owners who install qualified equipment at multiple sites are allowed to use the credit towards each location. Consumers who purchase residential fueling equipment may receive a tax credit of up to $1,000, which increases to $2,000 for equipment placed into service after December 31, 2008. The RFA worked hard to secure an extension of the credit until December 31, 2013. In moving forward, the RFA is working with its friends and champions in Congress to improve the effectives of the cedit and extend it for multiple years.

Page last updated April 2012