Key Tax Credits for Farmers: The 45Z Clean Fuel Production Credit

The 45Z Clean Fuel Production Credit is a newly established income tax credit for the domestic production of clean transportation fuel, which became available on January 1, 2025.

The credit is applicable to clean transportation fuel produced domestically and sold between January 1, 2025, and December 31, 2029. The Internal Revenue Service (IRS) divides clean transportation fuel into two broad categories: sustainable aviation fuel (SAF) and non-SAF transportation fuel.

To qualify for the credit, any clean transportation fuel produced after December 31, 2025, must be derived exclusively from feedstocks that are either grown or produced in the United States, Mexico, or Canada.

Registration and Filing Requirements

A taxpayer is ineligible to claim the Clean Fuel Production Credit unless they are registered as a producer of clean fuel at the time of production.

Taxpayers must first register using Form 637, Application for Registration (For Certain Excise Tax Activities). The registration requires specific Activity Letters based on the type of fuel produced:

• Activity Letter CA for producers of sustainable aviation fuel (SAF).
• Activity Letter CN for producers of non-SAF transportation fuel.

Producers who manufacture both types of fuel must register under both Activity Letters. Once registered, taxpayers claim the credit by filing Form 7218, Clean Fuel Production Credit, with their income tax return.

Credit Calculation and Eligibility

The value of the credit is calculated as the product of the applicable amount per gallon or gallon equivalent for transportation fuel produced at a qualified facility and sold in a qualified sale during the taxable year, multiplied by the emissions factor for that fuel as determined under the Code.

The 45Z tax credit is dependent on the degree to which the eligible fuel reduces emissions.

According to a February 4, 2026, entry in the Federal Register, proposed regulations for the Section 45Z Clean Fuel Production Credit would affect domestic producers of clean transportation fuel, excise tax registrants, and taxpayers who may claim a credit for a related producer’s fuel.