How Do I Get a Biofuel Tax Credit?

Alex Newth

Biofuel, which is a more processed version of biodiesel, comes from plant oils and animal fats. It is a sustainable and low-polluting form of energy that is able to emulate the energy output of conventional diesel and other fuels. The cost of biofuel is higher than that of conventional fuel, so many businesses and homeowners do not use it. As of 2011, a biofuel tax credit in the United States pays back businesses, homeowners and producers of qualified biofuel to offset the higher costs of both production and use and to encourage more people to use biofuel.

Woman holding a book
Woman holding a book

The biofuel tax credit is chiefly concerned with how much biofuel is used or sold. To get the biofuel tax credit and avoid unnecessary audits, it is important to keep any receipts from biofuel and biodiesel purchases. This also ensures people applying for biofuel tax credits receive the correct amount of credit toward their taxes. If producing biofuels, only the amount of biofuel sold can be applied toward a biofuel tax credit, and there are special rules the producer must follow.

For homeowners and businesses that do not sell biofuel, the tax credit form asks how much biofuel was used. The biofuel can be used for regular operating, such as heating and air conditioning. As long as the biofuel is used, it can be applied toward the tax credit. Both pure biofuels and biofuel mixed with conventional fuels can be used to seek the tax credit.

Businesses that sell biofuels follow the same rules. Unlike homeowners and other businesses, though, both the amount of biofuel used and the amount sold count toward the tax credit. So, if 15 gallons (56.7 liters) of biofuel are used and 20 gallons (75.7 liters) are sold, all 35 gallons (132.4 liters) are credited on the business’s taxes.

The rules for getting a biofuel tax credit are more structured and stricter for biofuel producers. To be eligible, the biofuel producer must be considered a small biofuel producer business. This means the business, during the entire tax year, only has a productive capacity of 60 million gallons (227,124.7 kiloliters) or less. Only up to 15 million gallons (56,781 kiloliters) can be declared for tax credits.

Along with the mentioned rules, the producer must sell the biofuel to a person or company or use the biofuel for specific uses. The biofuel must be used in a biofuel mixture, by a business for any reason, or sold to a retailer or homeowner. Biofuel not used for these purposes does not count for tax credit purposes.

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