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Publication 510

Biodiesel Fuel Credit(p22)

The biodiesel fuel credit consists of the straight biodiesel credit, biodiesel mixture credit, and small agri-biodiesel producer credit. If you sell or use biodiesel (not in a mixture) as a fuel, you may be eligible for a general business credit on your income tax return. The biodiesel mixture credit was discussed earlier.

Certificate of Biodiesel.(p22)

You must obtain and keep as part of your records a certification to you from the producer or importer of the biodiesel. The certificate is required for any biodiesel fuel credit claimed. The certificate must identify the product produced and the percentage of biodiesel and agri-biodiesel in the product. If the producer or importer of the biodiesel is also the taxpayer claiming the biodiesel credit, the certificate is required but lines 2–7 are not applicable. See Model Certificate O in the Appendix.
The certificate, and Statement of Biodiesel Reseller, if applicable, must be attached to the Form 8864 for which the claim is made. See Model Statement S in the Appendix.

Straight Biodiesel Credit(p22)

You can claim the credit for any biodiesel not mixed with diesel fuel.
You are eligible for the credit for straight biodiesel only if you met one of the following requirements during the tax year.
The credit is not allowed for biodiesel (including agri-biodiesel) you used as a fuel in a trade or business if that biodiesel (including agri-biodiesel) was sold to you in a retail sale described above.

Small Agri-Biodiesel Producer Credit(p22)

If you are an eligible small agri-biodiesel producer, you qualify for a credit on up to 15 million gallons of your qualified agri-biodiesel production for any tax year. Renewable diesel is not qualified agri-biodiesel. This additional biodiesel fuel credit is 10 cents for each gallon.
You are an eligible small agri-biodiesel producer if, at all times during the tax year, you have an annual productive capacity of not more than 60 million gallons of any type of agri-biodiesel.
For a partnership, trust, or S corporation, the 15- and 60-million gallon limits apply at both the entity level and the partner, beneficiary, or shareholder level.
Qualified agri-biodiesel fuel production.(p22)
Your qualified agri-biodiesel fuel production is any agri-biodiesel you produce and sell during the tax year to another person for any of the following purposes.
It also includes your use or sale of the agri-biodiesel for these purposes.
Cooperative election to allocate the small agri-biodiesel producer credit to patrons.(p22)
A cooperative described in Internal Revenue Code section 1381(a) can elect to allocate any part of the small agri-biodiesel producer credit to patrons of the cooperative. The credit is allocated among the patrons on the basis of the quantity or value of business done with or for the patrons for the tax year. For more information, see Form 8864.
Failure to use for qualifying purposes.(p22)
If the credit is applied to an eligible small agri-biodiesel producer and you do not use the agri-biodiesel for a purpose listed under Qualified agri-biodiesel fuel production, you must pay a tax equal to the credit. Report this tax on Form 720.

Credits for Fuel Provide Incentive for United States Production(p22)

The credits discussed under Biodiesel Fuel Credit may not be claimed for biodiesel that is produced outside the United States for use as a fuel outside the United States. The United States includes any possession of the United States.

How to Claim the Credit(p22)

You take the biodiesel fuel credit by completing Form 8864. All individuals and corporations taking the credit use Form 8864. Partnerships (including electing large partnerships), S corporations, estates, and trusts figure the credit on Form 8864 but divide the credit among their partners, shareholders, or beneficiaries.
If you take the biodiesel fuel credit, you must include the credit for the tax year in your gross income for that year.

Mixing or Failure to Use as Fuel(p22)

If the credit is applied to biodiesel you bought and you later mix the biodiesel or do not use it as a fuel, you must pay a tax equal to the credit. Report this tax on Form 720.