The new alternative fuel infrastructure tax credit is a scheme or program that helps businesses reduce their overall taxable income while also adopting sustainable business practices. It is authorized and applicable for the installation of alternative fueling equipment.
The credit program was actually part of the Energy Policy Act of 2005, and since then, it has been in practice and revised a number of times.
The alternative fuels that qualify for the tax credit are:
- Liquefied petroleum gas
- Natural gas
- Diesel fuel blends – with at least 20% biodiesel
- E85
- Electricity
- Hydrogen
- Liquefied petroleum gas
What is the Credit Amount?
There are certain time slabs for the credit amounts based on when the equipment was placed for service according to the Department of Energy (DOE).
- Before January 2009: The credit amount is 30% of the cost but is equal to or less than $30,000 according to the IRS.
- During 2009: The credit amount is 50% but should not be over $50,000.
- For Residential Fueling Equipment: Tax credit is up to $1,000, and for equipment in service after 2008, it is $2000.
- For Hydrogen Fueling Equipment: $200,000 max (after 2008) according to the IRS.
Which Vehicles Qualify for the New Alternative Fuel Infrastructure?
The tax credit amount depends on the gross weight of the vehicle. Also termed GVWR, the tax credit can go up as high as $50,000. It’s a one-time provision for purchasing a new vehicle or converting an old vehicle to alternative fuel.
Now, there are different tax credit slabs based on the GVWR. For instance, on smaller vehicles that weigh 6,000 pounds or less, the maximum credit you can get is $5,500. While for those weighing over 26,501 pounds or lbs. You can get as much as $50,000.
Further, certain conditions must be met to make the vehicle eligible for conversion. These are:
- The equipment must be new.
- It should meet all federal and state safety standards.
- A state-certified technician only can install it.
Who is Eligible for the New Alternative Fuel Infrastructure Tax Credit?
As we know, the new alternative fuel infrastructure tax credit is all about using fuel from renewable sources.
The credit is based on the different types of fuel costs. Actually, the purpose is to encourage businesses to use and produce fuel from renewable sources rather than fossil fuels.
However, the tax credit is not available to individuals as of now; it’s mostly to facilitate businesses, agriculture, farming, and boats, etc.
Eligibility Criteria
The new alternative fuel infrastructure tax credit program includes different fuels. That even includes the fuel used in the boats (commercially) and warehouses for different types of machinery to operate.
The criterion is fit for non-profit organizations as well as schools (for buses etc.). Other industries included are:
- Manufacturing companies
- Farming
- Landscape owners
- Construction companies
Thus anyone who uses renewable fuels like biofuels to run any equipment in these companies will be entitled to the credit.
How to Check for Eligibility
Now you may be wondering if your business or organization fits the criteria?
That’s easy to know. Simply log on to the IRS webpage and look it up. You can also talk to a tax professional or lawyer to check for eligibility or any other such concern about your business.
How to Apply
The next step is how to apply for the program. You can simply apply via the Federal Tax Form 4136. It’s the same form tax filers can use to claim the new alternative fuel infrastructure tax credit.
Tax filers can apply for the credit based on the income tax for a particular tax year. The claim is usually made on the tax returns with Form 4136, which will compute the total credit you can apply for.
You can claim the credit within three years of filing this return or by two years of paying the tax.
Benefits of the New Alternative Fuel Infrastructure Tax Credit
The program basically assists businesses while keeping the global renewable energy benefits in the background. Here are some of the key benefits of the program:
- The new alternative fuel infrastructure tax credit offsets the taxable business income.
- An opportunity to save up and invest the money elsewhere or make it part of the business equity.
- Businesses can capitalize on the tax benefit.
How the Program Works
As discussed, the new alternative fuel infrastructure tax credit reduces the tax imposed on fuels. This tax is usually used to maintain the highways, etc. This tax is applied on gasoline and diesel, and everyone who purchases these has to pay it.
The issue comes with the usage. Of course, not everyone uses the fuel for taxable purposes. But since the tax paid will be reimbursed (dollar for dollar), many businesses find a great advantage to using fuel from renewable sources.
How to Maximize your Benefits
If you want to maximize your gains based on the scheme, you must be aware of it. That’s very important as with time, the government makes certain amendments and changes to these programs, so make sure you know about all these before applying.
Next, you need to be in the right industry. Your company should be on the list of those that qualify for the benefit. Plus, it must have the required equipment that can be converted to alternative fuels.
However, if you do not use alternative fuel in your business equipment or your business does not fit the domain for the scheme, you can also qualify by selling the alternative fuel to others for use in boats, aviation, other vehicles, etc. In that case, too, you are entitled to the benefit.
The alternative fuels by definition include:
- Liquid petroleum gas
- Renewable non-petroleum fuels
- Natural gas (both compressed and liquefied)
- Hydrogen
- Other fuels that are derived from coal meet the requirements
- Biomass gas and fuel
Now, you can convert the equipment to maximize the gains, i.e., go from diesel to propane to make your business eligible for the credit.
Let’s take two examples here to reiterate the concept:
Warehouse
In a warehouse, you have some basic machines like the forklift and cranes used to carry and arrange the cartons or boxes. These need fuel – usually diesel – to operate.
Check if these can be shifted to propane instead. If that’s possible, you’ll qualify for the new alternative fuel infrastructure tax credit.
Aviation Industry
While it will be hard to convert the entire aircraft engine to alternative fuel, you can work on some of the ground equipment.
In such a large field we have a lot of vehicles and equipment on the ground like:
- Towing tractors
- Forklifts
- GPU tractors
- External AC towing vehicle
- Generators etc.
While you cannot change the aviation category fuel, you may convert this ground equipment to biofuels. Since there are so many machines, you will be eligible for a lot of credit.
The more vehicles converted, the more you gain. So you can increase your fleet too or simply try and convert all relevant machinery.
This would easily offset your taxes; in fact, it may even qualify you for a refund if it’s higher than your tax.
Improper Claims
Now keep in mind, it may seem like a simplistic scheme to get credit. However, anything erroneous or misleading on your part can result in punishment by law.
Whether it’s the result of human error or legitimate fraud, the claim is deemed improper, and hence a penalty is imposed.
The new alternative fuel infrastructure tax credit is by far one of the most misused tax credit schemes, so be very careful filing for it.
To keep away from prison and penalty, ensure:
- You always claim via an authentic and registered business company.
- Use the company account for such transactions.
- Make sure all business activities are transparent.
Final Thoughts
The new alternative fuel infrastructure tax credit is a great initiative for the business as well as the environment.
However, it may be beneficial over the short term. With the changes in trends and advances in technology, the new alternative fuel infrastructure tax credit criteria will also keep changing. So make the most of it while you can, saving your planet right along!
