In an effort to reduce America’s dependence on foreign oil, reduce urban emissions and reduce greenhouse gases, the federal government offers a number of tax incentives to encourage the use of natural gas vehicles.
Excise Tax Credit to the Seller of CNG or LNG
The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (PL 109–59, § 11113, 26 USC § 6426, § 6427; Became law on August 10, 2005) provides an incentive for compressed natural gas (CNG) and liquefied natural gas (LNG) when used as a “motor vehicle” fuel (including use in some non-road vehicles). The credit for CNG and LNG took effect on October 1, 2006 and originally expired on September 30, 2009.
Congress made a number of changes to the fuel credits in § 6426, § 6427 in 2008, including extending the expiration date from Sept. 30, 2009 to December 31, 2009. PL 110-343, 122 Stat. 3765, Enacted H.R. 1424 (Became law Oct. 3, 2008)
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (PL 111–312, § 701; Became law on December 17, 2010) extended the CNG and LNG fuel credits for 2011 and also made them retroactive for 2010.
The American Taxpayer Relief Act of 2012 (HR 8; PL 112–240, § 412; Became law on January 2, 2013) extended the availability of the 50-cent credit through the end of 2013 and made it retroactive for 2012.
The Tax Increase Prevention Act of 2014 (H.R. 5771; PL 113-295; Became law on December 19, 2014) retroactively extends the fuel credit through 2014.
Most recently, the Consolidated Appropriations Act, 2016 extended the incentive through 2016 and made it retroactive for 2015 (HR 2029; PL 114-113, § 192; Became law on December 18, 2015).
The Bipartisan Budget Act of 2018 (HR 1892; PL 115-123, § 40415) includes a retroactive extension of the incentive for 2017.
For more information on the CNG and LNG excise tax credit, including IRS tax guidance, visit the Federal Incentive for Alternative Fuel Use/Sale page.
Income Tax Credits of Alternative Fuel Infrastructure
The Energy Policy Act (EPAct) of 2005, PL 109–58, provides for an income tax credit equal to 30 percent of the cost of natural gas refueling equipment, up to $30,000 in the case of large stations and $1,000 for home refueling appliances. The credit went into effect after December 31, 2005 and after expiring has remained available through extensions. The most recent extension of this incentive occurred on December 18, 2015 when it was included in the Consolidated Appropriations Act, 2016 (PL 114-113, H.R. 2029). The most recent extension of this incentive occurred on February 9, 2018 when it was included in the Bipartisan Budget Act of 2018 (HR 1892; PL 115-123, § 40404). This law retroactively extends the incentive through 2016 and retroactively for 2015. Persons intending to take advantage of tax credits should consult with their tax advisors to understand how best to take advantage these provisions and also whether any limitations exist.
For more information on the income tax credits of alternative fuel infrastructure, visit the Federal Incentive for Alternative Fuel Infrastructure page.
IRS links and other resources
IRS tax forms