II

106TH CONGRESS

2D SESSION S. 2718

To amend the Internal Revenue Code of 1986 to provide incentives to

introduce new technologies to reduce energy consumption in buildings.

IN THE SENATE OF THE UNITED STATES

JUNE 13, 2000

Mr. SMITH of New Hampshire introduced the following bill; which was read

twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

incentives to introduce new technologies to reduce energy

consumption in buildings.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Energy Efficient

5 Buildings Incentives Act’’.

6 SEC. 2. INCENTIVE FOR CERTAIN ENERGY EFFICIENT

7 PROPERTY USED IN BUSINESS.

8 (a) IN GENERAL.—Part VI of subchapter B of chap9 ter 1 of the Internal Revenue Code of 1986 is amended

10 by adding at the end the following new section:
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1 ‘‘SEC. 199. ENERGY PROPERTY DEDUCTION.

2 ‘‘(a) IN GENERAL.—There shall be allowed as a de3 duction for the taxable year an amount equal to the sum

4 of—

5 ‘‘(1) the amount determined under subsection

6 (b) for each energy property of the taxpayer placed

7 in service during such taxable year, and

8 ‘‘(2) the energy efficient commercial building

9 amount determined under subsection (f).

10 ‘‘(b) AMOUNT FOR ENERGY PROPERTY.—

11 ‘‘(1) IN GENERAL.—The amount determined

12 under this subsection for the taxable year for each

13 item of energy property shall equal the amount spec14 ified for such property in the following table:

Description of property: Allowable amount is:

Elected solar hot water property ..................................... $1.00 per each

kwh/year of savings.

Photovoltaic property ....................................................... $4.50 per peak

watt.

Natural gas heat pump described in subsection

(d)(2)(C).

$3,000.

Tier 2 energy-efficient building property (other than a

natural gas heat pump).

$1,500.

Tier 1 energy-efficient building property ......................... $750.

15 ‘‘(2) ELECTED SOLAR HOT WATER PROP16 ERTY.—In the case of elected solar hot water prop17 erty, the taxpayer may elect to substitute ‘$21 per

18 annual Therm of natural gas savings’ for ‘$1.00 per
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1 each kwh/year of savings’ in the table contained in

2 paragraph (1).

3 ‘‘(c) ENERGY PROPERTY DEFINED.—

4 ‘‘(1) IN GENERAL.—For purposes of this part,

5 the term ‘energy property’ means any property—

6 ‘‘(A) which is—

7 ‘‘(i) solar energy property,

8 ‘‘(ii) Tier 2 energy-efficient building

9 property, or

10 ‘‘(iii) Tier 1 energy-efficient building

11 property,

12 ‘‘(B)(i) the construction, reconstruction, or

13 erection of which is completed by the taxpayer,

14 or

15 ‘‘(ii) which is acquired by the taxpayer if

16 the original use of such property commences

17 with the taxpayer,

18 ‘‘(C) with respect to which depreciation (or

19 amortization in lieu of depreciation) is allow20 able, and

21 ‘‘(D) which meets the performance and

22 quality standards, and the certification require23 ments (if any), which—

24 ‘‘(i) have been prescribed by the Sec25 retary by regulations (after consultation
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1 with the Secretary of Energy or the Ad2 ministrator of the Environmental Protec3 tion Agency, as appropriate), and

4 ‘‘(ii) are in effect at the time of the

5 acquisition of the property.

6 ‘‘(2) SOLAR ENERGY PROPERTY.—In the case

7 of—

8 ‘‘(A) elected solar hot water property, the

9 regulations under paragraph (1)(D) shall be

10 based on the OG–300 Standard for the Annual

11 Performance of OG–300 Certified Systems of

12 the Solar Rating and Certification Corporation,

13 and

14 ‘‘(B) photovoltaics, such regulations shall

15 be based on the ASTM Standard E 1036 and

16 E 1036M–96 Standard Test Method for Elec17 tric Performance of Nonconcentrator Terres18 trial Photovoltaic Modules and Arrays Using

19 Reference Cells,

20 to the extent the Secretary determines such stand21 ards carry out the purposes of this section.

22 ‘‘(3) EXCEPTION.—Such term shall not include

23 any property which is public utility property (as de24 fined in section 46(f)(5) as in effect on the day be-
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1 fore the date of the enactment of the Revenue Rec2 onciliation Act of 1990).

3 ‘‘(d) DEFINITIONS RELATING TO TYPES OF ENERGY

4 PROPERTY.—For purposes of this section—

5 ‘‘(1) SOLAR ENERGY PROPERTY.—

6 ‘‘(A) IN GENERAL.—The term ‘solar en7 ergy property’ means equipment which uses

8 solar energy—

9 ‘‘(i) to generate electricity, or

10 ‘‘(ii) to provide hot water for use in a

11 structure.

12 ‘‘(B) ELECTED SOLAR HOT WATER PROP13 ERTY.—

14 ‘‘(i) IN GENERAL.—The term ‘elected

15 solar hot water property’ means property

16 which is solar energy property by reason of

17 subparagraph (A)(ii) and for which an

18 election under this subparagraph is in ef19 fect.

20 ‘‘(ii) ELECTION.—For purposes of

21 clause (i), a taxpayer may elect to treat

22 property described in clause (i) as elected

23 solar hot water property.

24 ‘‘(C) PHOTOVOLTAIC PROPERTY.—The

25 term ‘photovoltaic property’ means solar energy
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1 property which uses a solar photovoltaic process

2 to generate electricity.

3 ‘‘(D) SWIMMING POOLS, ETC., USED AS

4 STORAGE MEDIUM.—The term ‘solar energy

5 property’ shall not include a swimming pool,

6 hot tub, or any other energy storage medium

7 which has a function other than the function of

8 such storage.

9 ‘‘(E) SOLAR PANELS.—No solar panel or

10 other property installed as a roof (or portion

11 thereof) shall fail to be treated as solar energy

12 property solely because it constitutes a struc13 tural component of the structure on which it is

14 installed.

15 ‘‘(2) TIER 2 ENERGY-EFFICIENT BUILDING

16 PROPERTY.—The term ‘Tier 2 energy-efficient build17 ing property’ means—

18 ‘‘(A) an electric heat pump hot water heat19 er that yields an energy factor of 1.7 or greater,

20 ‘‘(B) an electric heat pump that has a

21 heating system performance factor (HSPF) of

22 9 or greater and a cooling seasonal energy effi23 ciency ratio (SEER) of 15 or greater and a

24 peak energy efficiency ratio (EER) of 12.5 or

25 greater,
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1 ‘‘(C) a natural gas heat pump that has a

2 coefficient of performance of not less than 1.25

3 for heating and not less than 0.70 for cooling,

4 ‘‘(D) a central air conditioner that has a

5 cooling seasonal energy efficiency ratio (SEER)

6 of 15 or greater and a peak EER of 12.5 or

7 greater, and

8 ‘‘(E) an advanced natural gas water heater

9 that has an energy factor of at least 0.80.

10 ‘‘(3) TIER 1 ENERGY-EFFICIENT BUILDING

11 PROPERTY.—The term ‘Tier 1 energy-efficient build12 ing property’ means—

13 ‘‘(A) an electric heat pump that has a

14 heating system performance factor (HSPF) of

15 7.5 or greater and a cooling seasonal energy ef16 ficiency ratio (SEER) of 13.5 or greater and a

17 peak energy efficiency ratio (EER) of 11.5 or

18 greater,

19 ‘‘(B) a central air conditioner that has a

20 cooling seasonal energy efficiency ratio (SEER)

21 of 13.5 or greater and a peak EER of 11.5 or

22 greater, and

23 ‘‘(C) an advanced natural gas water heater

24 that has an energy factor of at least 0.65.
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1 ‘‘(e) SPECIAL RULES.—For purposes of this

2 section—

3 ‘‘(1) BASIS REDUCTION.—For purposes of this

4 subtitle, if a deduction is allowed under this section

5 with respect to any energy property, the basis of

6 such property shall be reduced by the amount of the

7 deduction so allowed.

8 ‘‘(2) DOUBLE BENEFIT.—Property which

9 would, but for this paragraph, be eligible for deduc10 tion under more than one provision of this section

11 shall be eligible only under one such provision, the

12 provision specified by the taxpayer.

13 ‘‘(f) ENERGY EFFICIENT COMMERCIAL BUILDING

14 PROPERTY DEDUCTION.—

15 ‘‘(1) DEDUCTION ALLOWED.—For purposes of

16 subsection (a)—

17 ‘‘(A) IN GENERAL.—The energy efficient

18 commercial building property deduction deter19 mined under this subsection is an amount equal

20 to energy efficient commercial building property

21 expenditures made by a taxpayer for the tax22 able year.

23 ‘‘(B) MAXIMUM AMOUNT OF DEDUC24 TION.—The amount of energy efficient commer25 cial building property expenditures taken into
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1 account under subparagraph (A) shall not ex2 ceed an amount equal to the product of—

3 ‘‘(i) $2.25, and

4 ‘‘(ii) the square footage of the build5 ing with respect to which the expenditures

6 are made.

7 ‘‘(C) YEAR DEDUCTION ALLOWED.—The

8 deduction under subparagraph (A) shall be al9 lowed in the taxable year in which the construc10 tion of the building is completed.

11 ‘‘(2) ENERGY EFFICIENT COMMERCIAL BUILD12 ING PROPERTY EXPENDITURES.—For purposes of

13 this subsection, the term ‘energy efficient commer14 cial building property expenditures’ means an

15 amount paid or incurred for energy efficient com16 mercial building property installed on or in connec17 tion with new construction or reconstruction of

18 property—

19 ‘‘(A) for which depreciation is allowable

20 under section 167,

21 ‘‘(B) which is located in the United States,

22 and

23 ‘‘(C) the construction or erection of which

24 is completed by the taxpayer.
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1 Such property includes all residential rental prop2 erty, including low-rise multifamily structures and

3 single family housing property which is not within

4 the scope of Standard 90.1–1999 (described in para5 graph (3)). Such term includes expenditures for

6 labor costs properly allocable to the onsite prepara7 tion, assembly, or original installation of the prop8 erty.

9 ‘‘(3) ENERGY EFFICIENT COMMERCIAL BUILD10 ING PROPERTY.—For purposes of paragraph (2)—

11 ‘‘(A) IN GENERAL.—The term ‘energy effi12 cient commercial building property’ means any

13 property which reduces total annual energy and

14 power costs with respect to the lighting, heat15 ing, cooling, ventilation, and hot water supply

16 systems of the building by 50 percent or more

17 in comparison to a reference building which

18 meets the requirements of Standard 90.1–1999

19 of the American Society of Heating, Refrig20 erating, and Air Conditioning Engineers and

21 the Illuminating Engineering Society of North

22 America using methods of calculation under

23 subparagraph (B) and certified by qualified

24 professionals as provided under paragraph (6).
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1 ‘‘(B) METHODS OF CALCULATION.—The

2 Secretary, in consultation with the Secretary of

3 Energy, shall promulgate regulations which de4 scribe in detail methods for calculating and

5 verifying energy and power consumption and

6 cost, taking into consideration the provisions of

7 the 1998 California Nonresidential ACM Man8 ual. These procedures shall meet the following

9 requirements:

10 ‘‘(i) In calculating tradeoffs and en11 ergy performance, the regulations shall

12 prescribe the costs per unit of energy and

13 power, such as kilowatt hour, kilowatt, gal14 lon of fuel oil, and cubic foot or Btu of

15 natural gas, which may be dependent on

16 time of usage.

17 ‘‘(ii) The calculational methodology

18 shall require that compliance be dem19 onstrated for a whole building. If some sys20 tems of the building, such as lighting, are

21 designed later than other systems of the

22 building, the method shall provide that

23 either—

24 ‘‘(I) the expenses taken into ac25 count under paragraph (1) shall not
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1 occur until the date designs for all en2 ergy-using systems of the building are

3 completed,

4 ‘‘(II) the energy performance of

5 all systems and components not yet

6 designed shall be assumed to comply

7 minimally with the requirements of

8 such Standard 90.1–1999, or

9 ‘‘(III) the expenses taken into ac10 count under paragraph (1) shall be a

11 fraction of such expenses based on the

12 performance of less than all energy13 using systems in accordance with

14 clause (iii).

15 ‘‘(iii) The expenditures in connection

16 with the design of subsystems in the build17 ing, such as the envelope, the heating, ven18 tilation, air conditioning and water heating

19 system, and the lighting system shall be al20 located to the appropriate building sub21 system based on system-specific energy

22 cost savings targets in regulations promul23 gated by the Secretary of Energy which

24 are equivalent, using the calculation meth-
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1 odology, to the whole building requirement

2 of 50 percent savings.

3 ‘‘(iv) The calculational methods under

4 this subparagraph need not comply fully

5 with section 11 of such Standard 90.1–

6 1999.

7 ‘‘(v) The calculational methods shall

8 be fuel neutral, such that the same energy

9 efficiency features shall qualify a building

10 for the deduction under this subsection re11 gardless of whether the heating source is a

12 gas or oil furnace or an electric heat pump.

13 ‘‘(vi) The calculational methods shall

14 provide appropriate calculated energy sav15 ings for design methods and technologies

16 not otherwise credited in either such

17 Standard 90.1–1999 or in the 1998 Cali18 fornia Nonresidential ACM Manual, in19 cluding the following:

20 ‘‘(I) Natural ventilation.

21 ‘‘(II) Evaporative cooling.

22 ‘‘(III) Automatic lighting controls

23 such as occupancy sensors, photocells,

24 and timeclocks.

25 ‘‘(IV) Daylighting.
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1 ‘‘(V) Designs utilizing semi-con2 ditioned spaces that maintain ade3 quate comfort conditions without air

4 conditioning or without heating.

5 ‘‘(VI) Improved fan system effi6 ciency, including reductions in static

7 pressure.

8 ‘‘(VII) Advanced unloading

9 mechanisms for mechanical cooling,

10 such as multiple or variable speed

11 compressors.

12 ‘‘(VIII) The calculational meth13 ods may take into account the extent

14 of commissioning in the building, and

15 allow the taxpayer to take into ac16 count measured performance that ex17 ceeds typical performance.

18 ‘‘(C) COMPUTER SOFTWARE.—

19 ‘‘(i) IN GENERAL.—Any calculation

20 under this paragraph shall be prepared by

21 qualified computer software.

22 ‘‘(ii) QUALIFIED COMPUTER SOFT23 WARE.—For purposes of this subpara24 graph, the term ‘qualified computer soft25 ware’ means software—
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1 ‘‘(I) for which the software de2 signer has certified that the software

3 meets all procedures and detailed

4 methods for calculating energy and

5 power consumption and costs as re6 quired by the Secretary,

7 ‘‘(II) which provides such forms

8 as required to be filed by the Sec9 retary in connection with energy effi10 ciency of property and the deduction

11 allowed under this subsection, and

12 ‘‘(III) which provides a notice

13 form which summarizes the energy ef14 ficiency features of the building and

15 its projected annual energy costs.

16 ‘‘(4) ALLOCATION OF DEDUCTION FOR PUBLIC

17 PROPERTY.—In the case of energy efficient commer18 cial building property installed on or in public prop19 erty, the Secretary shall promulgate a regulation to

20 allow the allocation of the deduction to the person

21 primarily responsible for designing the property in

22 lieu of the public entity which is the owner of such

23 property. Such person shall be treated as the tax

24 payer for purposes of this subsection.
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1 ‘‘(5) NOTICE TO OWNER.—The qualified indi2 vidual shall provide an explanation to the owner of

3 the building regarding the energy efficiency features

4 of the building and its projected annual energy costs

5 as provided in the notice under paragraph

6 (3)(C)(ii)(III).

7 ‘‘(6) CERTIFICATION.—

8 ‘‘(A) IN GENERAL.—Except as provided in

9 this paragraph, the Secretary, in consultation

10 with the Secretary of Energy, shall establish re11 quirements for certification and compliance pro12 cedures similar to the procedures under section

13 25B(c)(7).

14 ‘‘(B) QUALIFIED INDIVIDUALS.—Individ15 uals qualified to determine compliance shall be

16 only those individuals who are recognized by an

17 organization certified by the Secretary for such

18 purposes.

19 ‘‘(C) PROFICIENCY OF QUALIFIED INDIVID20 UALS.—The Secretary shall consult with non21 profit organizations and State agencies with ex22 pertise in energy efficiency calculations and in23 spections to develop proficiency tests and train24 ing programs to qualify individuals to determine

25 compliance.
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1 ‘‘(g) TERMINATION.—This section shall not apply

2 with respect to—

3 ‘‘(1) any energy property placed in service after

4 December 31, 2006, and

5 ‘‘(2) any energy efficient commercial building

6 property expenditures in connection with property—

7 ‘‘(A) the plans for which are not certified

8 under subsection (f)(6) on or before December

9 31, 2006, and

10 ‘‘(B) the construction of which is not com11 pleted on or before December 31, 2008.’’.

12 (b) CONFORMING AMENDMENTS.—

13 (1) Section 48(a)(3)(A) of such Code is amend14 ed to read as follows:

15 ‘‘(A) which is equipment used to produce,

16 distribute, or use energy derived from a geo17 thermal deposit (within the meaning of section

18 613(e)(2)), but only, in the case of electricity

19 generated by geothermal power, up to (but not

20 including) the electrical transmission stage,’’.

21 (2) Subparagraph (B) of section 168(e)(3) of

22 such Code is amended—

23 (A) in clause (vi)(I)—

24 (i) by striking ‘‘section 48(a)(3)’’ and

25 inserting ‘‘section 199(d)(1)’’, and
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1 (ii) by striking ‘‘clause (i)’’ and in2 serting ‘‘such subparagraph (A)’’, and

3 (B) in the last sentence, by striking ‘‘sec4 tion 48(a)(3)’’ and inserting ‘‘section

5 199(c)(3)’’.

6 (3) Section 1016(a) of such Code is amended

7 by striking ‘‘and’’ at the end of paragraph (26), by

8 striking the period at the end of paragraph (27) and

9 inserting ‘‘, and’’, and by inserting the following new

10 paragraph:

11 ‘‘(28) for amounts allowed as a deduction under

12 section 199(a).’’.

13 (c) CLERICAL AMENDMENT.—The table of sections

14 for part VI of subchapter B of chapter 1 of such Code

15 is amended by adding at the end the following new item:

‘‘Sec. 199. Energy property deduction.’’.

16 (d) AUTHORIZATION OF APPROPRIATIONS.—There

17 are authorized to be appropriated to the Department of

18 Energy out of amounts not already appropriated such

19 sums as necessary to carry out this section.

20 (e) EFFECTIVE DATE.—The amendments made by

21 this section shall apply to taxable years beginning after

22 December 31, 2000.
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1 SEC. 3. CREDIT FOR CERTAIN NONBUSINESS ENERGY

2 PROPERTY.

3 (a) IN GENERAL.—Subpart A of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of

5 1986 (relating to nonrefundable personal credits) is

6 amended by inserting after section 25A the following new

7 section:

8 ‘‘SEC. 25B. NONBUSINESS ENERGY PROPERTY.

9 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in10 dividual, there shall be allowed as a credit against the tax

11 imposed by this chapter for the taxable year an amount

12 equal to the sum of—

13 ‘‘(1) the amount determined under subsection

14 (b) for each qualified energy property of the tax15 payer placed in service during such taxable year, and

16 ‘‘(2) the credit amount specified in the fol17 lowing table for a new, highly energy-efficient prin18 cipal residence:

‘‘New, highly energy-efficient

principal residence:

Credit amount:

30 percent property ........................................................................... $750

50 percent property ........................................................................... $2,000.

19 ‘‘(b) AMOUNT FOR QUALIFIED ENERGY PROP20 ERTY.—

21 ‘‘(1) RESIDENTIAL ENERGY PROPERTY EX22 PENDITURES.—Except as provided in paragraph (2),

23 the amount determined under this subsection for the
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1 taxable year for each item of qualified energy prop2 erty shall equal the amount of residential energy

3 property expenditures made by the taxpayer with re4 spect to such property during such taxable year.

5 ‘‘(2) SOLAR HOT WATER PROPERTY; PHOTO6 VOLTAIC PROPERTY.—

7 ‘‘(A) IN GENERAL.—In the case of solar

8 hot water property and photovoltaic property,

9 the amount determined under this subsection

10 for the taxable year shall equal the amount

11 specified for such property in the following

12 table:

Description of property: Allowable amount is:

Elected solar hot water property ..................................... 35¢ per each

kwh/year of savings.

Photovoltaic property ....................................................... $1.50 per peak

watt.

13 ‘‘(B) ELECTED SOLAR HOT WATER PROP14 ERTY.—In the case of elected solar hot water

15 property, the taxpayer may elect to substitute

16 ‘$7 per annual Therm of natural gas savings’

17 for ‘35¢ per each kwh/year of savings’ in the

18 table contained in subparagraph (A).

19 ‘‘(3) MAXIMUM AMOUNT.—In the case of prop20 erty described in the following table, the amount of

21 expenditures taken into account under paragraph
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1 (1) and the amount determined under paragraph (2)

2 for the taxable year for each item of qualified energy

3 property with respect to a dwelling unit shall not

4 exceed the amount specified for such property in

5 such table:

‘‘Description of property item: Maximum allowable

credit amount is:

Tier 2 energy-efficient building property (other than a

natural gas heat pump).

$500.

Natural gas heat pump described in section

199(d)(2)(C).

$1,000.

Tier 1 energy-efficient building property ......................... $ 250.

Solar hot water property ................................................. $1,000.

Photovoltaic property ....................................................... $6,000.

6

7 ‘‘(c) DEFINITIONS.—For purposes of this section—

8 ‘‘(1) RESIDENTIAL ENERGY PROPERTY EX9 PENDITURES.—The term ‘residential energy prop10 erty expenditures’ means expenditures made by the

11 taxpayer for qualified energy property installed on or

12 in connection with a dwelling unit which—

13 ‘‘(A) is located in the United States, and

14 ‘‘(B) is used by the taxpayer as a resi15 dence.

16 Such term includes expenditures for labor costs

17 properly allocable to the onsite preparation, assem18 bly, or original installation of the property.

19 ‘‘(2) QUALIFIED ENERGY PROPERTY.—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified

2 energy property’ means—

3 ‘‘(i) energy-efficient building property,

4 ‘‘(ii) solar hot water property, and

5 ‘‘(iii) photovoltaic property.

6 ‘‘(B) SWIMMING POOL, ETC., USED AS

7 STORAGE MEDIUM; SOLAR PANELS.—For pur8 poses of this paragraph, the provisions of sub9 paragraphs (D) and (E) section 199(d)(1) shall

10 apply.

11 ‘‘(C) REQUIRED STANDARDS.—Property

12 described under subparagraph (A) shall meet

13 the performance and quality standards and cer14 tification standards of paragraphs (1)(D) and

15 (2) of section 199(c).

16 ‘‘(3) ENERGY-EFFICIENT BUILDING PROP17 ERTY.—The term ‘energy-efficient building property’

18 has the same meaning given the terms ‘Tier 2 en19 ergy-efficient property’ and ‘Tier 1 energy-efficient

20 property’ in paragraphs (2) and (3) of section

21 199(d), respectively.

22 ‘‘(4) SOLAR HOT WATER PROPERTY.—The term

23 ‘solar hot water property’ means property which,

24 when installed in connection with a structure, uses
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1 solar energy for the purpose of providing hot water

2 for use within such structure.

3 ‘‘(5) PHOTOVOLTAIC PROPERTY.—The term

4 ‘photovoltaic property’ has the same meaning given

5 such term in section 199(d)(1)(C).

6 ‘‘(6) RESIDENCE.—For purposes of paragraph

7 (1)(B), the term ‘residence’ has the same meaning

8 as when the term ‘principal residence’ is used in sec9 tion 121, except no ownership requirement shall be

10 imposed.

11 ‘‘(7) HIGHLY ENERGY-EFFICIENT PRINCIPAL

12 RESIDENCE.—

13 ‘‘(A) IN GENERAL.—Property is a highly

14 energy-efficient principal residence if—

15 ‘‘(i) such property is located in the

16 United States,

17 ‘‘(ii) the use of such property com18 mences with the taxpayer and is, at the

19 time of such use, the principal residence of

20 the taxpayer, and

21 ‘‘(iii) such property is certified before

22 such use commences as being 50 percent

23 property or 30 percent property.

24 ‘‘(B) 50 OR 30 PERCENT PROPERTY.—
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1 ‘‘(i) IN GENERAL.—For purposes of

2 subparagraph (A), property is 50 percent

3 property or 30 percent property if the pro4 jected heating and cooling energy usage of

5 such property, measured in terms of aver6 age annual energy cost to taxpayer, is re7 duced by 50 percent, or 30 percent, respec8 tively, in comparison to the energy usage

9 of the standard design reference house as

10 determined using the procedures under

11 clause (iv).

12 ‘‘(ii) STANDARD DESIGN REFERENCE

13 HOUSE.—For purposes of this paragraph,

14 the term ‘standard design reference house’

15 means a dwelling which conforms with the

16 standards of chapter 4 of the 2000 Inter17 national Energy Conservation Code of the

18 International Code Council and the min19 imum equipment efficiency standards pro20 mulgated by the Department of Energy

21 under the National Appliance Energy Con22 servation Act.

23 ‘‘(iii) ENERGY EFFICIENT REFERENCE

24 HOUSE.—For purposes of this paragraph,

25 the term ‘energy efficient reference house’
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1 means a design of a dwelling which uses

2 the same heating fuel type as the proposed

3 design and which uses minimum standards

4 equipment, as required by the Department

5 of Energy under the National Appliance

6 Energy Conservation Act and which

7 achieves, on average over fuel type and

8 house geometry, the required 30 percent or

9 50 percent reductions in annual energy

10 cost as calculated using the procedures

11 under clause (iv).

12 ‘‘(iv) PROCEDURES.—

13 ‘‘(I) IN GENERAL.—For purposes

14 of clause (i), energy usage shall be

15 demonstrated either by a component16 based approach or a performance17 based approach.

18 ‘‘(II) COMPONENT APPROACH.—

19 Compliance by the component ap20 proach is achieved when all of the

21 components of the house comply with

22 the requirements of prescriptive pack23 ages established by the Secretary of

24 Energy, in consultation with the Ad25 ministrator of the Environmental Pro-
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1 tection Agency, such that they are

2 equivalent, for the strong majority of

3 houses which can use this method, to

4 the results of using the performance5 based approach of subclause (III) to

6 achieve the required reduction in en7 ergy usage.

8 ‘‘(III) PERFORMANCE-BASED AP9 PROACH.—Performance-based compli10 ance shall be demonstrated in terms

11 of equivalent or less energy usage

12 when compared to the energy efficient

13 reference house of the same heating

14 fuel type as the taxpayer’s house or

15 through an alternate method pre16 scribed by the Secretary which yields

17 equivalent results.

18 ‘‘(IV) COMPUTER SOFTWARE.—

19 Computer software shall be used in

20 support of performance-based compli21 ance under subclause (III) and such

22 software shall meet all of the proce23 dures and methods for calculating en24 ergy savings reductions that are pro25 mulgated by the Secretary of Energy.
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1 Such regulations on the specifications

2 for software and verification protocols

3 shall be based on the 1998 California

4 Residential Alternative Calculation

5 Method Approval Manual.

6 ‘‘(V) FUEL PARITY.—In the case

7 of both the component and the per8 formance-based approaches, and any

9 software used in support of such ap10 proach, the Secretary shall assure fuel

11 parity by requiring both the energy ef12 ficient reference house and the pre13 scriptive package under subclause (II)

14 to employ the same envelope energy

15 efficiency measures for a house heated

16 by a gas furnace as for a house heat17 ed by an electric air source heat pump

18 or by an oil furnace or boiler; and, for

19 equipment efficiency, to employ elec20 tric, oil, or gas equipment efficiency of

21 corresponding efficiency improvement.

22 Such determination of corresponding

23 efficiency improvement shall be made

24 on a linear scale between the min25 imum standard equipment efficiency
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1 and the best available marketplace

2 technology efficiency as determined by

3 the Secretary after considering the in4 formation provided by the Air Condi5 tioning and Refrigeration Institute

6 (ARI) and the Gas Appliance Manu7 facturers Association (GAMA) guides

8 for the respective electric, oil, and

9 natural gas equipment of such type

10 (such as heating and cooling).

11 ‘‘(VI) APPROVAL OF SOFTWARE

12 SUBMISSIONS.—The Secretary shall

13 approve software submissions that

14 comply with the calculation require15 ments of subclause (IV).

16 ‘‘(VII) PROCEDURES FOR IN17 SPECTION AND TESTING OF HOMES.—

18 The Secretary shall ensure that proce19 dures for the inspection and testing

20 for compliance comply with the cal21 culation requirements under subclause

22 (IV).

23 ‘‘(C) DETERMINATIONS OF COMPLIANCE.—

24 A determination of compliance made for the

25 purposes of this paragraph shall be filed with
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1 the Secretary within 1 year of the date of such

2 determination and shall include the TIN of the

3 certifier, the address of the building in compli4 ance, and the identity of the person for whom

5 such determination was performed. Determina6 tions of compliance filed with the Secretary

7 shall be available for inspection by the Sec8 retary of Energy.

9 ‘‘(D) COMPLIANCE.—

10 ‘‘(i) IN GENERAL.—The Secretary, in

11 consultation with the Secretary of Energy

12 shall establish requirements for certifi13 cation and compliance procedures after ex14 amining the requirements for energy con15 sultants and home energy ratings providers

16 specified by the Mortgage Industry Na17 tional Accreditation Procedures for Home

18 Energy Rating Systems.

19 ‘‘(ii) INDIVIDUALS QUALIFIED TO DE20 TERMINE COMPLIANCE.—Individuals quali21 fied to determine compliance shall be only

22 those individuals who are recognized by an

23 organization certified by the Secretary for

24 such purposes. The Secretary may qualify

25 a Home Energy Rating Systems Organiza-
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1 tion, a local building code agency, a State

2 or local energy office, a utility, or other or3 ganizations which meet the requirements

4 prescribed under this section.

5 ‘‘(E) PRINCIPAL RESIDENCE.—For pur6 poses of this paragraph, the term ‘principal res7 idence’ has the same meaning as when used in

8 section 121, except that the period for which a

9 building is treated as the principal residence of

10 the taxpayer shall also include the 60-day pe11 riod ending on the 1st day on which it would

12 (but for this subparagraph) first be treated as

13 a principal residence.

14 ‘‘(d) SPECIAL RULES.—For purposes of this

15 section—

16 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC17 CUPANCY.—In the case of any dwelling unit which if

18 jointly occupied and used during any calendar year

19 as a residence by 2 or more individuals the following

20 rules shall apply:

21 ‘‘(A) The amount of the credit allowable

22 under subsection (a) by reason of expenditures

23 made during such calendar year by any of such

24 individuals with respect to such dwelling unit

25 shall be determined by treating all of such indi-
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1 viduals as 1 taxpayer whose taxable year is

2 such calendar year.

3 ‘‘(B) There shall be allowable with respect

4 to such expenditures to each of such individ5 uals, a credit under subsection (a) for the tax6 able year in which such calendar year ends in

7 an amount which bears the same ratio to the

8 amount determined under subparagraph (A) as

9 the amount of such expenditures made by such

10 individual during such calendar year bears to

11 the aggregate of such expenditures made by all

12 of such individuals during such calendar year.

13 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

14 HOUSING CORPORATION.—In the case of an indi15 vidual who is a tenant-stockholder (as defined in sec16 tion 216) in a cooperative housing corporation (as

17 defined in such section), such individual shall be

18 treated as having made his tenant-stockholder’s pro19 portionate share (as defined in section 216(b)(3)) of

20 any expenditures of such corporation and such credit

21 shall be allocated pro rata to such individual.

22 ‘‘(3) CONDOMINIUMS.—

23 ‘‘(A) IN GENERAL.—In the case of an indi24 vidual who is a member of a condominium man25 agement association with respect to a condo-
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1 minium which he owns, such individual shall be

2 treated as having made his proportionate share

3 of any expenditures of such association and any

4 credit shall be allocated appropriately.

5 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO6 CIATION.—For purposes of this paragraph, the

7 term ‘condominium management association’

8 means an organization which meets the require9 ments of paragraph (1) of section 528(c) (other

10 than subparagraph (E) thereof) with respect to

11 a condominium project substantially all of the

12 units of which are used as residences.

13 ‘‘(4) JOINT OWNERSHIP OF ENERGY ITEMS.—

14 ‘‘(A) IN GENERAL.—Any expenditure oth15 erwise qualifying as a residential energy prop16 erty expenditure shall not be treated as failing

17 to so qualify merely because such expenditure

18 was made with respect to 2 or more dwelling

19 units.

20 ‘‘(B) LIMITS APPLIED SEPARATELY.—In

21 the case of any expenditure described in sub22 paragraph (A), the amount of the credit allow23 able under subsection (a) shall (subject to para24 graph (1)) be computed separately with respect
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1 to the amount of the expenditure made for each

2 dwelling unit.

3 ‘‘(5) ALLOCATION IN CERTAIN CASES.—If less

4 than 80 percent of the use of an item is for nonbusi5 ness purposes, only that portion of the expenditures

6 for such item which is properly allocable to use for

7 nonbusiness purposes shall be taken into account.

8 For purposes of this paragraph, use for a swimming

9 pool shall be treated as use which is not for nonbusi10 ness purposes.

11 ‘‘(6) COORDINATION WITH OTHER CREDITS.—

12 Property which would, but for this paragraph, be eli13 gible for credit under more than one provision of

14 this section shall be eligible only under one such pro15 vision, the provision specified by the taxpayer.

16 ‘‘(7) WHEN EXPENDITURE MADE; AMOUNT OF

17 EXPENDITURE.—

18 ‘‘(A) IN GENERAL.—Except as provided in

19 subparagraph (B), an expenditure with respect

20 to an item shall be treated as made when the

21 original installation of the item is completed.

22 ‘‘(B) EXPENDITURES PART OF BUILDING

23 CONSTRUCTION.—In the case of an expenditure

24 in connection with the construction of a struc25 ture, such expenditure shall be treated as made
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1 when the original use of the constructed struc2 ture by the taxpayer begins.

3 ‘‘(8) PROPERTY FINANCED BY SUBSIDIZED EN4 ERGY FINANCING.—

5 ‘‘(A) REDUCTION OF EXPENDITURES.—

6 ‘‘(i) IN GENERAL.—For purposes of

7 determining the amount of residential en8 ergy property expenditures made by any

9 individual with respect to any dwelling

10 unit, there shall not be taken in to account

11 expenditures which are made from sub12 sidized energy financing.

13 ‘‘(ii) SUBSIDIZED ENERGY FINANC14 ING.—For purposes of clause (i), the term

15 ‘subsidized energy financing’ has the same

16 meaning given such term in section

17 48(a)(4)(C).

18 ‘‘(B) DOLLAR LIMITS REDUCED.—The dol19 lar amounts in the table contained in subsection

20 (b)(1) with respect to each property purchased

21 for such dwelling unit for any taxable year of

22 such taxpayer shall be reduced proportionately

23 by an amount equal to the sum of—

24 ‘‘(i) the amount of the expenditures

25 made by the taxpayer during such taxable
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1 year with respect to such dwelling unit and

2 not taken into account by reason of sub3 paragraph (A), and

4 ‘‘(ii) the amount of any Federal,

5 State, or local grant received by the tax6 payer during such taxable year which is

7 used to make residential energy property

8 expenditures with respect to the dwelling

9 unit and is not included in the gross in10 come of such taxpayer.

11 ‘‘(e) BASIS ADJUSTMENTS.—For purposes of this

12 subtitle, if a credit is allowed under this section for any

13 expenditure with respect to any property, the increase in

14 the basis of such property which would (but for this sub15 section) result from such expenditure shall be reduced by

16 the amount of the credit so allowed.

17 ‘‘(f) TERMINATION.—This section shall not apply

18 with respect to any taxable years beginning after Decem19 ber 31, 2006.’’.

20 (b) CONFORMING AMENDMENTS.—

21 (1) Subsection (a) of section 1016 of such Code

22 as amended by section 2(b)(3), is amended by strik23 ing ‘‘and’’ at the end of paragraph (27), by striking

24 the period at the end of paragraph (28) and insert-
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1 ing ‘‘, and’’, and by adding at the end the following

2 new paragraph:

3 ‘‘(29) to the extent provided in section 25B(e),

4 in the case of amounts with respect to which a credit

5 has been allowed under section 25B.’’.

6 (2) The table of sections for subpart A of part

7 IV of subchapter A of chapter 1 of such Code is

8 amended by inserting after the item relating to sec9 tion 25A the following new item:

‘‘Sec. 25B. Nonbusiness energy property.’’.

10 (c) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to expenditures made after Decem12 ber 31, 2000.

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