Most farmers obtain dyed diesel without having to paying federal and in most cases state excise taxes. However, there can be many other uses on the farm that will allow a farmer to claim a fuel tax credit on Form 4136. Some of these uses are:
Any field use of gasoline powered tractors/combines,
Any field use of gasoline powered pick-ups or trucks,
Any field use of gasoline powered automobiles (do you take your car into the field to scout, etc.),
Compressors operated on the farm powered by gasoline,
Backup generators powered by gasoline (or diesel if taking diesel out of undyed tank),
Lawn mowing/landscaping equipment used in farm areas,
Maintenance shed equipment (any gas operated items used to repair machinery),
Gas used in ATV’s.
There are likely some others that we have missed, but any gas gallons consumed for farm related activities that is not performed on public roads is eligible for the credit. Also, if you use a propane powered equipment (such as a forklift), you can get registered with the IRS and obtain a credit for those gallons used on the farm. In some cases, this credit can easily save a $1,000 or more in income taxes each year.
The credit is claimed on Form 4136 and flows through to the tax return as a refundable credit (similar to income tax withholding) and even if you owe no taxes, you will still get the credit refunded to you. However, if you claim the credit, you must report the credit as additional income on Schedule F (or similar farm schedule) on next year’s taxes.