IRS Instruction 8933 – In an era where combating climate change is paramount, the U.S. government offers incentives to encourage carbon capture and storage technologies. One such incentive is the Carbon Oxide Sequestration Credit, claimed via IRS Form 8933. This tax credit rewards businesses and entities for capturing and securely storing carbon dioxide and other carbon oxides, helping reduce greenhouse gas emissions while providing significant financial benefits. Whether you’re an industrial facility owner, operator, or investor in direct air capture (DAC) projects, understanding the instructions for Form 8933 is essential for maximizing your tax savings in 2026. This guide breaks down the key details, eligibility, calculation methods, and recent updates to help you navigate the process effectively.
What Is the Carbon Oxide Sequestration Credit?
The Carbon Oxide Sequestration Credit, also known as the Section 45Q credit, is a federal tax incentive designed to promote the capture, utilization, and secure storage of carbon oxide (including carbon dioxide) from industrial sources or the atmosphere. Enacted under Section 45Q of the Internal Revenue Code, it aims to support technologies that mitigate climate change by preventing carbon emissions from entering the atmosphere.
The credit applies to qualified carbon oxide that is:
- Captured using specialized equipment.
- Disposed of in secure geological storage (e.g., deep saline formations, oil/gas reservoirs, or unminable coal seams).
- Used as a tertiary injectant in enhanced oil recovery (EOR) or natural gas recovery projects, followed by secure storage.
- Utilized in commercial applications, such as chemical conversion or fixation through photosynthesis.
Form 8933 is the primary document used to claim this credit, with various schedules (A through F) tailored to different roles, such as owners of disposal sites, operators of EOR projects, or utilization facilities. The form must be filed with your federal income tax return, and partnerships or S corporations report it on Form 3800, General Business Credit.
Who Qualifies for the Credit?
Eligibility for the Section 45Q credit depends on your role in the carbon capture process and the type of facility involved. Key qualifiers include:
- Owners or Operators of Geological Disposal Sites or EOR Projects: Use Schedules A, B, or C if you injected qualified carbon oxide during the tax year.
- Owners of Capture Facilities: If you supply carbon oxide to another party for disposal, EOR, or utilization, and elect to pass the credit (via Schedule E).
- Utilization Facility Owners: Use Schedule F for utilizing carbon oxide in approved ways.
- Recapture Events: Report any recapture on Schedule D if previously claimed carbon oxide is no longer securely stored.
To claim the credit, you must own the carbon capture equipment (or contractually ensure proper handling) and meet minimum capture thresholds:
- 1,000 metric tons annually for DAC facilities.
- 18,750 metric tons for electricity-generating facilities (with at least 75% capture rate).
- 12,500 metric tons for other industrial facilities.
Construction of the facility must begin before January 1, 2033, and carbon capture must occur before that date. Additionally, for facilities placed in service after February 8, 2018, only one taxpayer per process train of equipment can claim the credit.
Important restrictions: No credit is allowed for tax years beginning after July 4, 2025, if the taxpayer is a foreign-influenced entity as defined in Section 7701(a)(51)(D). Partners in partnerships with a valid Section 761(a) election are treated as the taxpayer and must file accordingly.
Recent Updates and Changes for 2025-2026
The Carbon Oxide Sequestration Credit has seen significant enhancements through legislation like the Inflation Reduction Act of 2022 (IRA) and the One Big Beautiful Bill Act (Public Law 119-21). These changes aim to make the credit more accessible and valuable.
- Inflation Adjustments: For 2025, credit rates under Sections 45Q(a)(1) and (a)(2) are increased to $28.43 per metric ton for secure storage without utilization/EOR, and $14.21 per metric ton for utilization or EOR with storage (per Notice 2025-25).
- New Base Credit Rate: For facilities or equipment placed in service after July 4, 2025, and before 2027, a standardized base credit of $17 per metric ton applies for carbon dioxide capture, regardless of use. This rate is subject to inflation adjustments for 2026.
- Increased Credits for Compliance: Facilities meeting prevailing wage and apprenticeship (PWA) requirements can claim higher rates (e.g., up to $85 per metric ton for secure storage post-2022). File Form 7220 for verification.
- Safe Harbor for 2025 Reporting: Due to proposed EPA changes eliminating Subpart RR reporting obligations after 2024 (90 F.R. 44591, September 16, 2025), Notice 2026-01 provides a safe harbor for claiming the credit in calendar year 2025. If the EPA’s electronic Greenhouse Gas Reporting Tool (e-GGRT) isn’t available by June 10, 2026, taxpayers can use independent engineer or geologist certification instead of EPA submissions. This involves preparing an Annual Report with Subpart RR data and obtaining a penalties-of-perjury certification of compliance and accuracy. Retain all documentation in your records. This interim guidance ensures continuity while Treasury develops updated regulations for post-2025 sequestration.
Other reminders include pre-filing registration for elective payments or transfers (via IRS.gov/Register) and lifecycle greenhouse gas emissions analysis updates per Notice 2024-60.
How to Calculate the Credit?
Calculating the credit involves determining the metric tons of qualified carbon oxide captured, adjusted for usage and storage methods. Key rates for 2025 (inflation-adjusted where applicable):
| Credit Type | Rate per Metric Ton (Pre-February 9, 2018 Equipment) | Rate per Metric Ton (Post-February 8, 2018 Equipment, Base) | Increased Rate (PWA Compliant, Post-2022) |
|---|---|---|---|
| Secure Storage (No Utilization/EOR) | $28.43 | $17 (post-July 4, 2025) or $46.96 (interpolation) | Up to $85 |
| Utilization or EOR with Storage | $14.21 | $12 (post-July 4, 2025) or $32.54 (interpolation) | Up to $60 |
| DAC Facilities (Secure Storage) | N/A | $36 (post-2022 base) | Up to $180 |
For facilities with equipment added post-February 8, 2018, allocate captured amounts between old and new rates. Apply the displacement factor for utilization to limit credits based on net emissions reduction. Elect under Section 45Q(b)(3) to use lower fixed rates if beneficial.
The credit is available for 12 years from the equipment’s placement in service date, with options to elect later starts in disaster areas.
Step-by-Step Guide to Filling Out Form 8933
- Gather Information: Collect data on captured metric tons, verified at the point of disposal/injection/utilization. Ensure secure storage compliance via EPA-approved plans or ISO standards.
- Complete Relevant Schedules: Use A-F based on your role (e.g., Schedule E for credit elections).
- Part I – General Information: Enter taxpayer details, facility info, and elections.
- Part II – Credit Calculation:
- Line 1: Secure storage without utilization/EOR.
- Line 2: EOR/natural gas recovery with storage.
- Line 3: Utilization (apply displacement factor on Line 3g).
- Part III – Total Credit: Sum lines and report on Form 3800, line 1x.
- File Timely: Attach to your tax return (e.g., Form 1120, 1065). For elective payments/transfers, include pre-filing registration number.
For detailed line-by-line instructions, consult the official guidance. Retain records for at least three years, including contracts, verification reports, and certifications.
Required Documentation and Recordkeeping
Maintain detailed records to substantiate your claim, such as:
- Contracts for disposal/utilization.
- EPA MRV Plan approvals or independent certifications (under safe harbor).
- Lifecycle analysis for utilization.
- Metric ton measurements and verifications.
Failure to comply may result in credit recapture if carbon oxide escapes storage.
Download the Official Forms and Instructions
To get started, download the latest IRS Form 8933 and its instructions:
Always check IRS.gov for the most current versions, as updates may occur.
Conclusion
Claiming the Carbon Oxide Sequestration Credit via Form 8933 can provide substantial tax relief for entities investing in carbon capture technologies. With recent legislative boosts and the 2025 safe harbor addressing EPA transitions, 2026 presents a prime opportunity to leverage this incentive. Consult a tax professional to ensure compliance and optimize your claim. By participating, you’re not only reducing your tax liability but also contributing to a greener future. For more details, visit the IRS website or review the cited sources.