Farmer Pumping Fuel

Many cooperatives have been claiming the alternative fuel vehicle refueling property credit to offset the cost of installing LP fuel pumping stations.

Tax strategies

Coops Explore Tax Credits for Refueling Property and Charging Equipment

  • Rebecca Smith
  • 12/14/2016

Because of environmental concerns, Congress enacted a tax incentive several years ago to encourage the installation of facilities to store or dispense alternative fuels. Over the last several months, cooperatives have been claiming the alternative fuel vehicle refueling property credit to offset the cost of installing LP fuel pumping stations. The tax credit currently is available for “qualified alternative fuel vehicle refueling property” (QAFV refueling property) placed in service through December 31, 2016. Although the credit is scheduled to expire at the end of the year, it is expected to be part of a tax extenders package that will make it available for another year or two.

What qualifies as refueling property?

The Energy Policy Act of 1992 set the definition of alternative fuels; however, for purposes of the alternative vehicle refueling credit, the definition is limited to the following clean-burning fuels:

  • Electricity
  • Any fuel which consists of 85 percent or more by volume of natural gas, liquefied or compressed natural gas, propane, hydrogen, or ethanol
  • Mixtures of biodiesel, diesel, and kerosene in which biodiesel accounts for at least 20 percent of the volume

According to the IRS, QAFV refueling property is any property (other than a building or its structural components) used for either of the following:  

  • To store or dispense an alternative fuel other than electricity into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into that tank
  • To recharge an electric vehicle, but only if the recharging property is located at the point where the vehicle is recharged

Cost and depreciation

The cost of QAFV refueling property includes all expenses that are required to be capitalized, including the cost of acquiring or constructing the refueling property or converting conventional refueling property into QAFV refueling property. For example, storage tanks, dispensing equipment, and electric vehicle charging supply equipment qualify. However, permitting, legal fees, and inspection fees typically do not.

The refueling property must be business use property, placed in service during the taxpayer’s tax year, predominantly used inside the United States, and the original use of the property must begin with the taxpayer (new property). If not business use property, the property must be installed on property used as the taxpayer’s main home. The property is considered placed in service when it is first depreciated or is in a state of readiness and availability for use, even if it is not yet in use.

For property subject to an allowance, the maximum credit is the lesser of $30,000 or 30 percent of the cost per location. For personal use property, the maximum credit is the lesser or $1,000 or 30 percent of the cost of the property placed in service at the taxpayer’s main home. In calculating the credit, each property’s cost must first be reduced by any Section 179 expense deduction taken for the property. The amount of the credit does reduce the basis of the property for depreciation purposes.

Additional considerations for the QAFV refueling property credit

The Alternative Fuel Vehicle Refueling Property Credit is claimed by filing Form 8911 with the tax return, and it is included as a general business credit. Unused credits may be carried back one year and forward 20 years. Some additional considerations include the following:

  • If fueling equipment is leased, the lessor is the one who takes the credit, not the lessee.
  • If the infrastructure is acquired by a tax-exempt entity, the company that sold the fueling equipment can claim the credit, but only if it provides the customer with written verification of the credit value.
  • The seller may pass along any savings associated with the credit, but is not required to.
  • If the property no longer qualifies for the credit, all or a part of the credit may have to be recaptured.

How we can help

This is a federal tax credit, so it does not reduce your state taxable income. However, several states offer their own tax incentive for alternative fuels or charging equipment installation. CLA’s team includes agribusiness and cooperatives professionals as well as state and local tax resources. CLA draws on the depth of our talent nationwide to help you fully understand the possibilities of this tax credit as well as its implications for the future.