Agricultural Water Conservation Act

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Agricultural Water Conservation 
Act''.

SEC. 2. CONGRESSIONAL FINDINGS.

    The Congress finds that--
            (1) the Federal Government has an historic commitment to 
        assisting areas of the Nation in need of developing adequate 
        water supplies,
            (2) water is becoming increasingly scarce and expensive in 
        many parts of the United States, which is compounded when 
        multiple years of drought occur,
            (3) in most areas of the United States, farms are 
        overwhelmingly the largest water consumers, and
            (4) it is in the national interest for farmers to implement 
        water conservation measures which address water conservation 
        needs and for the Federal Government to promote such 
        conservation measures.

SEC. 3. CREDIT FOR PURCHASE AND INSTALLATION OF AGRICULTURAL WATER 
              CONSERVATION SYSTEMS.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to foreign tax credit, 
etc.) is amended by adding at the end the following new section:

``SEC. 30B. PURCHASE AND INSTALLATION OF AGRICULTURAL WATER 
              CONSERVATION SYSTEMS.

    ``(a) Allowance of Credit.--In the case of an eligible taxpayer, 
there shall be allowed as a credit against the tax imposed by this 
chapter for the taxable year an amount equal to 30 percent of the water 
conservation system expenses paid or incurred by the taxpayer during 
such year.
    ``(b) Maximum Credit.--The credit allowed by subsection (a) with 
respect to any water conservation system shall not exceed the product 
of $500 and the number of acres served by such system.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible taxpayer.--The term `eligible taxpayer' 
        means any taxpayer if--
                    ``(A) at least 50 percent of such taxpayer's gross 
                income is normally derived from a trade or business 
                referred to in paragraph (3)(C), and
                    ``(B) such taxpayer complies with all Federal, 
                State, and local water rights and environmental laws.
            ``(2) Water conservation system expenses.--
                    ``(A) In general.--The term `water conservation 
                system expenses' means expenses for the purchase and 
                installation of a water conservation system but only 
                if--
                            ``(i) the land served by the water is 
                        entirely in an area which has been identified, 
                        in the taxable year or in any of the 3 
                        preceding taxable years, as an area of--
                                    ``(I) extreme drought severity on 
                                the Palmer Drought Severity Index 
                                published by the National Oceanic and 
                                Atmospheric Administration, or
                                    ``(II) water shortage (due to 
                                increasing demands, limited supplies, 
                                or limited storage) by the Natural 
                                Resources Conservation Service of the 
                                Department of Agriculture or the Bureau 
                                of Reclamation of the Department of the 
                                Interior,
                            ``(ii) the taxpayer has in effect a water 
                        conservation plan which has been reviewed and 
                        approved by such Service and Bureau,
                            ``(iii) such expenses are consistent with 
                        such plan, and
                            ``(iv) there is an irrigation water savings 
                        of at least 5 percent which is attributable to 
                        such system.
                For purposes of clause (iv), water savings shall be 
                determined and verified under regulations prescribed 
                jointly by such Service and Bureau.
                    ``(B) Water conservation system.--The term `water 
                conservation system' means materials or equipment which 
                are primarily designed to substantially conserve 
                irrigation water used or to be used on farm land.
                    ``(C) Farm land.--The term `farm land' means land 
                used in a trade or business by the taxpayer or a tenant 
                of the taxpayer for--
                            ``(i) the production of crops, fruits, or 
                        other agricultural products,
                            ``(ii) the raising, harvesting, or growing 
                        of trees, or
                            ``(iii) the sustenance of livestock.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) Liability for tax.--The credit allowable under 
        subsection (a) for any taxable year shall not exceed the excess 
        (if any) of--
                    ``(A) the regular tax for the taxable year, reduced 
                by the sum of the credits allowable under subpart A and 
                the preceding sections of this subpart, over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(2) Carryforward of unused credit.--If the amount of the 
        credit allowable under subsection (a) for any taxable year 
        exceeds the limitation under paragraph (1) for the taxable 
        year, the excess shall be carried to the succeeding taxable 
        year and added to the amount allowable as a credit under 
        subsection (a) for such succeeding taxable year.
    ``(d) Denial of Double Benefit.--No deduction shall be allowed 
under this chapter with respect to any expense which is taken into 
account in determining the credit under this section, and any increase 
in the basis of any property which would (but for this subsection) 
result from such expense shall be reduced by the amount of credit 
allowed under this section for such expense.''
    (b) Technical Amendment.--Subsection (a) of section 1016 of such 
Code is amended by striking ``and'' at the end of paragraph (25), by 
striking the period at the end of paragraph (26) and inserting ``; 
and'', and by adding at the end the following new paragraph:
            ``(27) to the extent provided in section 30B(d), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 30B.''
    (c) Clerical Amendment.--The table of sections for subpart B of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following new item:

                              ``Sec. 30B. Purchase and installation of 
                                        agricultural water conservation 
                                        systems.''
    (d) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act, in taxable years ending after such date.

Summary: Agricultural Water Conservation Act - Amends the Internal Revenue Code to allow a tax credit for water conservation system expenses, if used on farm land having an extreme drought or a water shortage and meeting other requirements. Limits the amount of the credit and allows unused credit to be carried to the succeeding taxable year. Reduces by the amount of the credit any basis increase that would otherwise occur.