IRS Instruction 7218 – IRS Forms, Instructions, Pubs 2026 – The Clean Fuel Production Credit under Internal Revenue Code Section 45Z, introduced by the Inflation Reduction Act and extended through 2029, incentivizes U.S. production of low-emission transportation fuels. Taxpayers use Form 7218 to claim this credit for qualified clean fuels produced and sold after December 31, 2024.
IRS Instruction 7218 (Rev. December 2025) provides detailed guidance on eligibility, calculation, and form completion. This SEO-optimized guide explains everything you need to know, based on official IRS sources as of 2026. Always verify the latest details on IRS.gov and consult a tax professional, as rules are complex and subject to updates.
What Is the Clean Fuel Production Credit?
The Section 45Z credit rewards domestic production of transportation fuel with lifecycle greenhouse gas emissions rates of 50 kg CO₂e per mmBTU or less. It covers two main categories:
- Non-SAF transportation fuel (e.g., renewable diesel, biodiesel for highway vehicles).
- Sustainable Aviation Fuel (SAF) — liquid fuel meeting specific ASTM standards, sold for aircraft use and not derived from certain restricted sources.
Key eligibility requirements:
- The fuel must be produced in the United States (including territories) at a qualified facility.
- The taxpayer must be registered as a clean fuel producer under Section 4101 at the time of production.
- The fuel must be sold to an unrelated person for qualifying uses: in a fuel mixture, in a trade or business, or at retail into a vehicle/aircraft fuel tank.
- Emissions rate ≤ 50 kg CO₂e/mmBTU (using IRS-published tables or a Provisional Emissions Rate/PER).
- The facility cannot claim conflicting credits in the same year (e.g., Section 45V clean hydrogen, Section 45Q carbon capture, or certain energy credits).
Qualified facility excludes facilities claiming certain other credits. A separate Form 7218 is required for each facility.
Recent changes (from Public Law 119-21, the One Big Beautiful Bill Act, and 2025 notices):
- Credit extended from 2027 to December 31, 2029.
- Restrictions on specified foreign entities and foreign-influenced entities.
- U.S./North American feedstock requirements for fuel produced after 2025.
- SAF special rates removed after 2025; emissions rate rules updated (no negative rates except specific cases like animal manure feedstocks).
How to Calculate the Clean Fuel Production Credit?
The credit equals:
Gallons (or gasoline gallon equivalents) sold × Emissions factor × Inflation-adjusted applicable amount
Emissions factor = (50 – emissions rate in kg CO₂e/mmBTU) ÷ 50, rounded to the nearest 0.1. Use the emissions rate table in Notice 2025-11 or petition for a PER if no published rate exists.
Applicable amounts (base, before inflation adjustment):
| Fuel Type | PWA Requirements Not Met | PWA Requirements Met |
|---|---|---|
| Non-SAF transportation fuel | $0.20 per gallon/GGE | $1.00 per gallon/GGE |
| Sustainable Aviation Fuel (SAF) | $0.35 per gallon/GGE | $1.75 per gallon/GGE |
For fuel sold in 2025, inflation adjustments (per Notice 2025-37) yield roughly $0.21–$1.86 per gallon/GGE. Amounts increase with the inflation factor and round to the nearest cent. Prevailing Wage and Apprenticeship (PWA) requirements significantly boost the credit but require compliance verification via Form 7220.
Step-by-Step Instructions for Form 7218 (Rev. December 2025)
File a separate Form 7218 for each qualified facility.
Part I – Facility and Other Information
- Line 1: IRS-issued registration number (for elective payment/transfer).
- Lines 2a–2d: Facility description, owner (if different), address, and coordinates.
- Line 3: Construction start date.
- Line 4: Placed-in-service date.
- Line 5a/5b: Producer registration number (Section 4101) and approval date (activity letter CN or CA). Attach statement if multiple or lengthy.
- Line 6: Check if using a Provisional Emissions Rate (PER).
- Line 7: Check if PWA requirements are met (requires separate Form 7220 per facility for increased credit).
Part II – Clean Fuel Production Credit
- Line 1: Total credit from Part III, line 25.
- Line 2: Credits passed through from partnerships, S corporations, estates, trusts, or cooperatives (report on separate Form 7218 per recent instructions revision).
- Subsequent lines handle transfers, allocations to patrons/beneficiaries, and totals for Form 3800, Part III, line 1q.
Part III – Fuel Produced and Sold
Use a separate line (or continuation sheets) for each fuel type/feedstock combination:
- Column (a): Fuel type (non-SAF or SAF).
- Column (b): Feedstock type (U.S./North American origin required after 2025).
- Column (c): Calendar year sold.
- Column (d): Emissions rate or PER (kg CO₂e/mmBTU).
- Column (e): Calculate and enter emissions factor.
- Column (f): Gallons or gallon equivalents sold.
- Column (g): Inflation-adjusted applicable amount (base × inflation factor).
- Column (h): Credit for this line (e × f × g).
Sum column (h) on line 25 and carry to Part II.
Attachments and statements:
- SAF requires unrelated-party certification.
- PWA compliance via Form 7220.
- Registration documentation if needed.
- Emissions substantiation (safe harbor certification for non-SAF per guidance).
Filing, Elective Payment, and Credit Transfers
Report the total on Form 3800, General Business Credit. Applicable entities (e.g., tax-exempt organizations, governments) may elect elective payment under Section 6417 (treated as tax payment, potentially refundable). Eligible taxpayers can transfer all or part of the credit under Section 6418 for cash.
Pre-filing registration is mandatory for elective payments or transfers via the IRS online tool.
Records to keep: Maintain detailed production, sales, emissions, registration, and compliance records for as long as material to tax administration.
Who Should Claim the Clean Fuel Production Credit?
Producers of renewable diesel, biodiesel, renewable natural gas, SAF, and other qualifying low-carbon fuels. Cooperatives, partnerships, and S corporations can pass through or allocate the credit. Foreign entity restrictions apply starting mid-2025/2027.
Tips for Success and Common Pitfalls
- Register early under Section 4101 — no credit without it at production time.
- Meet PWA for the full credit multiplier (file Form 7220).
- Track emissions rates carefully using Notice 2025-11 tables.
- Watch feedstock origin and coordination with excise tax credits (Sections 40A, 6426).
- For 2025 sales, use inflation-adjusted amounts from Notice 2025-37.
Download official resources:
- Instructions for Form 7218 (PDF) → https://www.irs.gov/pub/irs-pdf/i7218.pdf
- Form 7218 itself
- Related Notices 2025-10, 2025-11, 2025-37, and 2024-49 (registration)
The Clean Fuel Production Credit supports the transition to lower-carbon transportation fuels while providing significant tax savings for compliant producers. Rules continue to evolve with proposed regulations and guidance. For personalized advice, work with a qualified tax advisor or CPA familiar with energy tax credits.
This article is for informational purposes only and is not tax or legal advice. Tax laws and IRS instructions are subject to change. Refer to the official IRS publications and consult a professional for your specific situation.