Fuels Used in Farming — 2025 Publ 225 (PDF)

Owners, operators, and tenants of farms and certain other persons may be eligible to claim a credit or refund of excise taxes on fuel used in the trade or business of farming when used on a farm in the United States for farming purposes. See Table 14-1 for a list of available fuel excise tax credits and refunds. Fuel is used on a farm for farming purposes only if used in carrying on a trade or business of farming, on a farm in the United States, and for farming purposes.

Farm. A farm includes livestock, dairy, fish, poultry, fruit, fur-bearing animals, truck farms, orchards, plantations, ranches, nurseries, ranges, and feed yards for finishing cattle. It also includes structures such as greenhouses used primarily for raising agricultural or horticultural commodities. A fish farm is an area where fish are grown or raised and not merely caught or harvested.

Dyed versus undyed diesel. Diesel is undyed when sold for highway use vehicles and excise tax is collected at the time of sale. The diesel is dyed when the intended use is for nontaxable purposes, such as farming, and no excise tax is collected at the time of sale. When undyed diesel is used in farming or any other qualifying purpose, the taxpayer may recover the excise tax paid by claiming a credit or filing for a refund (see Table 14-1).

Dyed diesel fuel and dyed kerosene. If you purchase dyed diesel fuel or dyed kerosene for a nontaxable use, you must use it only on a farm for farming purposes or for other nontaxable purposes. For example, you shouldn't use dyed diesel fuel in a truck that is used both on the farm for farming purposes and on the highway, even though the highway use is in connection with farm business. Excise tax applies to the fuel used by the truck on the highways. In this situation, undyed (taxed) fuel should be purchased for the truck. You should keep fuel records of the use of the truck on the farm for farming purposes and for other uses. You may be eligible for a credit or refund for the excise tax on fuel used on the farm for farming purposes.

Penalty. A penalty is imposed on any person who knowingly uses, sells, or alters dyed diesel fuel or dyed kerosene for any purpose other than a nontaxable use. The penalty is the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved. After the first violation, the $1,000 portion of the penalty increases depending on the number of violations. For more information on this penalty, see Pub. 510.

Farming purposes. As the owner, tenant, or operator and the ultimate purchaser of fuel that you purchased, you use the fuel on a farm for farming purposes if you use it in any of the following ways.

Use this table to see if you can take a credit or refund for a nontaxable use of the fuel listed.

Fuel Used	On a Farm for Farming Purposes	Off-Highway Business Use	Household Use or Use Other Than as a Fuel1
Gasoline	Credit only	Credit or refund	None
Aviation gasoline	Credit only	None	None
Undyed diesel fuel and undyed kerosene	Credit or refund	Credit or refund2	Credit or refund2
Kerosene for use in aviation	Credit or refund	None	None
Dyed diesel fuel and dyed kerosene	None	None	None
Other Fuels (including alternative fuels)3	Credit or refund	Credit or refund	None
1 For a use other than as fuel in a propulsion engine.
2 Applies to undyed kerosene not sold from a blocked pump or, under certain circumstances, for blending with undyed diesel fuel to be used for heating purposes. See Regulations section 48.6427-10(b)(1) for the definition of a blocked pump.
3 Other Fuels means any liquid except gas oil, fuel oil, or any product taxable under section 4081. It includes the alternative fuels: liquefied petroleum gas (LPG), “P” Series fuels, compressed natural gas (CNG), liquefied hydrogen, Fischer-Tropsch process liquid fuel from coal (including peat), liquid fuel derived from biomass, liquefied natural gas (LNG), liquefied gas derived from biomass, and compressed gas derived from biomass.

To cultivate the soil or to raise or harvest any agricultural or horticultural commodity.
To raise, shear, feed, care for, train, or manage livestock, bees, poultry, fur-bearing animals, or wildlife.
To operate, manage, conserve, improve, or maintain your farm and its tools and equipment.
To handle, dry, pack, grade, or store any raw agricultural or horticultural commodity. For this use to qualify, you must have produced more than half the commodity so treated during the tax year. The more-than-one-half test applies separately to each commodity. Commodity means a single raw product. For example, apples and peaches are two separate commodities.
To plant, cultivate, care for, or cut trees or to prepare (other than sawing logs into lumber, chipping, or other milling) trees for market, but only if these activities are incidental to your farming operations. Your tree operations are incidental only if they are minor in nature when compared to the total farming operations.

If any other person, such as a neighbor or custom operator (independent contractor), performs a service for you on your farm for any of the purposes included in list item (1) or (2) above, you are considered to be the ultimate purchaser who used the fuel on a farm for farming purposes. Therefore, you can still claim the credit or refund for the fuel so used. However, see Custom application of fertilizer and pesti- cide , later. If the other person performs any other services for you on your farm for purposes not included in list item (1) or (2) above, no one

can claim the credit or refund for fuel used on your farm for those other services.

Fuel not used for farming. You don’t use fuel on a farm for farming purposes when you use it in any of the following ways.

Off the farm, such as on the highway or in noncommercial aviation, even if the fuel is used in transporting livestock, feed, crops, or equipment.
For personal use, such as lawn mowing.
In processing, packaging, freezing, or canning operations.
In processing crude gum into gum spirits of turpentine or gum resin or in processing maple sap into maple syrup or maple sugar.

Buyer of fuel, including undyed diesel fuel or undyed kerosene. If doubt exists whether the owner, tenant, or operator of the farm bought the fuel, determine who actually bore the cost of the fuel. For example, if the owner of a farm and his or her tenant equally share the cost of gasoline used on the farm, each can claim a credit for the tax on half the fuel used.

Undyed diesel fuel, undyed kerosene, and other fuels (including alternative fuel). Usually, the farmer is the only person who can make a claim for credit or refund for the tax on undyed diesel fuel, undyed kerosene, or other fuels (including alternative fuel) used for farming purposes. However, see Custom application of fertilizer and pesticide next. Also see Dyed die- sel fuel and dyed kerosene, earlier.

Example. Farm owner Haleigh Blue hired custom operator Tyler Steele to cultivate the soil on Haleigh’s farm. Tyler purchased 200 gallons

Publication 225 (2025) Chapter 14 Fuel Excise Tax Credits and Refunds 89

Claiming a Credit or Refund of Excise Taxes

of undyed diesel fuel to perform the work on Haleigh's farm. In addition, Haleigh hired contractor Lee Brown to pack and store the farm’s apple crop. Lee bought 25 gallons of undyed diesel fuel to use in packing the apples. Haleigh can claim the credit for the 200 gallons of undyed diesel fuel used by Tyler on the farm because it qualifies as fuel used on the farm for farming purposes. No one can claim a credit for the 25 gallons used by Lee because that fuel wasn’t used for a farming purpose included in list item (1) or (2) above.

In the above example, both Tyler Steele and Lee Brown could have purchased dyed (untaxed) diesel fuel for their tasks.

Custom application of fertilizer and pes- ticide. Fuel used on a farm for farming purposes includes fuel used in the application (including aerial application) of fertilizer, pesticides, or other substances. Generally, the applicator is treated as having used the fuel on a farm for farming purposes and therefore claims the credit or refund. For applicators using highway vehicles, only the fuel used on the farm is exempt. Fuel used traveling on the highway to and from the farm is taxable. Fuel used by an aerial applicator for the direct flight between the airfield and one or more farms is treated as used for a farming purpose. For aviation gasoline, the aerial applicator makes the claim as the ultimate purchaser. For kerosene used in aviation, the ultimate purchaser may make the claim or waive the right to make the claim to the registered ultimate vendor. A sample waiver is included as Model Waiver L in the appendix of Pub. 510.

A registered ultimate vendor is the person who sells undyed diesel fuel, undyed kerosene, or kerosene for use in aviation to the user (ultimate purchaser) of the fuel for use on a farm for farming purposes. To claim a credit or refund of tax, the ultimate vendor must be registered with the IRS at the time the claim is made. However, registered ultimate vendors can’t make claims for undyed diesel fuel and undyed kerosene sold for use on a farm for farming purposes.

All-terrain vehicles (ATVs). Fuel used in ATVs on a farm for farming purposes, discussed earlier, is eligible for a credit or refund of excise taxes on the fuel. Fuel used in ATVs for nonfarming purposes isn’t eligible for a credit or refund of the taxes. If ATVs are used both for farming and nonfarming purposes, only that portion of the fuel used for farming purposes is eligible for the credit or refund.