I 

109TH CONGRESS 

1ST SESSION H. R. 524

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

the conservation of water. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 2, 2005

Ms. BERKLEY introduced the following bill; which was referred to the 

Committee on Ways and Means 

A BILL

To amend the Internal Revenue Code of 1986 to provide 

incentives for the conservation of water.

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 ‘‘Water Conservation 

5 Incentive Act’’. 

6 SEC. 2. FINDINGS. 

7 The Congress finds that—

8 (1) a severe to extreme drought affected ap9 proximately 15 percent of the contiguous United 

10 States as of the end of April 2004, 
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1 (2) about 32 percent of the contiguous United 

2 States fell in the moderate to extreme drought cat3 egories at the end of April 2004, 

4 (3) the Colorado River system is facing the 

5 worst drought on record, 

6 (4) the drought throughout the western United 

7 States could persist for up to another 30 years, 

8 (5) growing populations and changing values 

9 have increased demands on water supplies and river 

10 systems, resulting in water use and management 

11 conflicts throughout the country, particularly in the 

12 West, where the population is expected to increase 

13 at least 30 percent in the next 20–25 years, and 

14 (6) unless highly efficient water usage practices 

15 can be developed and maintained in the West, it will 

16 not be possible to provide the water needed to sus17 tain western ecosystems, as well as population 

18 growth. 

19 SEC. 3. REFUNDABLE CREDIT FOR RESIDENTIAL WATER 

20 CONSERVATION. 

21 (a) IN GENERAL.—Subpart C of part IV of sub22 chapter A of chapter 1 of the Internal Revenue Code of 

23 1986 (relating to refundable credits) is amended by redes24 ignating section 36 as section 37 and by inserting after 

25 section 35 the following new section: 
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1 ‘‘SEC. 36. RESIDENTIAL WATER CONSERVATION. 

2 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in3 dividual, there shall be allowed as a credit against the tax 

4 imposed by this chapter for the taxable year an amount 

5 equal to the qualified water conservation expenditures 

6 made by the taxpayer during the taxable year. 

7 ‘‘(b) LIMITATIONS.—

8 ‘‘(1) MAXIMUM CREDIT.—The credit allowed 

9 under subsection (a) for a taxable year shall not ex10 ceed $1,000. 

11 ‘‘(2) MINIMUM EXPENDITURES.—If the aggre12 gate qualified water conservation expenditures made 

13 by the taxpayer during a taxable year is less than 

14 $50, the amount allowed as a credit under sub15 section (a) for the taxable year shall be zero. 

16 ‘‘(3) PROPERTY STANDARDS.—No credit shall 

17 be allowed under this section for an item of property 

18 unless—

19 ‘‘(A) the original use of such property com20 mences with the taxpayer, 

21 ‘‘(B) such property reasonably can be ex22 pected to remain in use for at least 5 years, 

23 and 

24 ‘‘(C) such property is installed on or in 

25 connection with a dwelling unit located in the 

26 United States and used as the principal resi-
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1 dence (within the meaning of section 121) of 

2 the taxpayer. 

3 ‘‘(c) QUALIFIED WATER CONSERVATION EXPENDI4 TURES.—For purposes of this section—

5 ‘‘(1) IN GENERAL.—The term ‘qualified water 

6 conservation expenditure’ means the amount paid 

7 for qualified water conservation property. 

8 ‘‘(2) QUALIFIED WATER CONSERVATION PROP9 ERTY.—The term ‘qualified water conservation prop10 erty’ means—

11 ‘‘(A) smart dual or multi program irriga12 tion clock that allows the watering of plant and 

13 grass areas separately and which is capable of 

14 adjusting the watering schedule based on the 

15 watering needs of the landscape being watered, 

16 ‘‘(B) water efficient landscaping, includ17 ing—

18 ‘‘(i) xeriscape (which is low-water use 

19 native and non-native plants and grasses), 

20 and 

21 ‘‘(ii) artificial turf, 

22 ‘‘(C) low-flow shower heads that use no 

23 more than 3 gallons of water per minute, 

24 ‘‘(D) ultra low-flush toilets that use no 

25 more than 1.6 gallons of water per flush, 
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1 ‘‘(E) dual flush toilets that allow the con2 sumer to select either a short flush of 0.80 gal3 lons of water or a long flush of 1.6 gallons of 

4 water, 

5 ‘‘(F) drip irrigation, 

6 ‘‘(G) high-efficiency clothes washing ma7 chine, and 

8 ‘‘(H) any other property of a type specified 

9 by the Secretary. 

10 ‘‘(3) LIMITATION ON TYPES OF PROPERTY

11 SPECIFIED BY SECRETARY.—The Secretary may 

12 only specify a type of property for purposes of para13 graph (2)(H) if—

14 ‘‘(A) the principal use of such property is 

15 to reduce the amount of water consumed in any 

16 existing residential process, 

17 ‘‘(B) such property or the use of such 

18 property is not harmful to persons or the envi19 ronment and does not induce the use of any 

20 other item which may be hazardous to persons 

21 or the environment, and 

22 ‘‘(C) the Secretary determines that the 

23 credit allowed under subsection (a) with respect 

24 to such property, together with any other Fed-
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1 eral subsidy of such property, is not superfluous 

2 and inefficient. 

3 ‘‘(d) SPECIAL RULES.—For purposes of this sec4 tion—

5 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC6 CUPANCY.—In the case of any dwelling unit which is 

7 jointly occupied and used during any calendar year 

8 as a residence by 2 or more individuals, the fol9 lowing rules shall apply: 

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

11 under subsection (a) by reason of expenditures 

12 made during such calendar year by any of such 

13 individuals with respect to such dwelling unit 

14 shall be determined by treating all of such indi15 viduals as 1 taxpayer whose taxable year is 

16 such calendar year. 

17 ‘‘(B) There shall be allowable, with respect 

18 to such expenditures to each of such individ19 uals, a credit under subsection (a) for the tax20 able year in which such calendar year ends in 

21 an amount which bears the same ratio to the 

22 amount determined under subparagraph (A) as 

23 the amount of such expenditures made by such 

24 individual during such calendar year bears to 
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1 the aggregate of such expenditures made by all 

2 of such individuals during such calendar year. 

3 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

4 HOUSING CORPORATION.—In the case of an indi5 vidual who is a tenant-stockholder (as defined in sec6 tion 216) in a cooperative housing corporation (as 

7 defined in such section), such individual shall be 

8 treated as having made the individual’s tenant-stock9 holder’s proportionate share (as defined in section 

10 216(b)(3)) of any expenditures of such corporation. 

11 ‘‘(3) CONDOMINIUMS.—

12 ‘‘(A) IN GENERAL.—In the case of an indi13 vidual who is a member of a condominium man14 agement association with respect to a condo15 minium which the individual owns, such indi16 vidual shall be treated as having made the indi17 vidual’s proportionate share of any expenditures 

18 of such association. 

19 ‘‘(B) CONDOMINIUM MANAGEMENT ASSO20 CIATION.—For purposes of this paragraph, the 

21 term ‘condominium management association’ 

22 means an organization which meets the require23 ments of paragraph (1) of section 528(c) (other 

24 than subparagraph (E) thereof) with respect to 
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1 a condominium project substantially all of the 

2 units of which are used as residences. 

3 ‘‘(4) 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 ‘‘(5) WHEN EXPENDITURE MADE; AMOUNT OF

9 EXPENDITURE.—

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

11 subparagraph (B), an expenditure with respect 

12 to an item shall be treated as made when the 

13 original installation of the item is completed. 

14 ‘‘(B) EXPENDITURES PART OF BUILDING

15 CONSTRUCTION.—In the case of an expenditure 

16 in connection with the construction or recon17 struction of a structure, such expenditure shall 

18 be treated as made when the original use of the 

19 constructed or reconstructed structure by the 

20 taxpayer begins. 

21 ‘‘(C) AMOUNT.—The amount of any ex22 penditure shall be the cost thereof. 

23 ‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN24 ERGY FINANCING.—For purposes of determining the 

25 amount of expenditures made by any individual with 
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1 respect to any dwelling unit, there shall not be taken 

2 into account expenditures which are made from sub3 sidized energy financing (as defined in section 

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

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

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

7 expenditure with respect to any property, the increase in 

8 the basis of such property which would (but for this sub9 section) result from such expenditure shall be reduced by 

10 the amount of the credit so allowed.’’. 

11 (b) CONFORMING AMENDMENTS.—

12 (1) Section 1016(a) of such Code is amended 

13 by striking ‘‘and’’ at the end of paragraph (30), by 

14 striking the period at the end of paragraph (31) and 

15 inserting ‘‘, and’’, and by adding at the end the fol16 lowing new paragraph: 

17 ‘‘(32) to the extent provided in section 36(e), in 

18 the case of amounts with respect to which a credit 

19 has been allowed under section 36.’’. 

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

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

22 amended by redesignating the item relating to sec23 tion 36 as an item relating to section 37 and insert24 ing before the item relating to section 37 the fol25 lowing new item:

‘‘Sec. 36. Residential water conservation.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to property placed in service after 

3 December 31, 2004. 

4 SEC. 4. CREDIT FOR WATER CONSERVATION. 

5 (a) IN GENERAL.—Subpart D of part IV of sub6 chapter A of chapter 1 of the Internal Revenue Code of 

7 1986 (relating to business related credits) is amended by 

8 adding at the end the following new section: 

9 ‘‘SEC. 45I. COMMERCIAL WATER CONSERVATION CREDIT. 

10 ‘‘(a) IN GENERAL.—For purposes of section 38, in 

11 the case of a small employer, the credit determined under 

12 this section for the taxable year is an amount equal to 

13 10 percent of the aggregate adjusted bases of all qualified 

14 water conservation property installed in or in connection 

15 with the principal place of business (within the meaning 

16 of section 280A(c)(1)) of the taxpayer located in the 

17 United States. 

18 ‘‘(b) DEFINITIONS.—For purposes of this section—

19 ‘‘(1) SMALL EMPLOYER.—

20 ‘‘(A) IN GENERAL.—The term ‘small em21 ployer’ means, with respect to any taxable year, 

22 any employer if such employer employed an av23 erage of 100 or fewer employees on business 

24 days during either of the 2 preceding calendar 

25 years. For purposes of the preceding sentence, 
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1 a preceding calendar year may be taken into ac2 count only if the employer was in existence 

3 throughout such year. 

4 ‘‘(B) EMPLOYERS NOT IN EXISTENCE IN

5 PRECEDING YEAR.—In the case of an employer 

6 which was not in existence throughout the 1st 

7 preceding taxable year, the determination under 

8 subparagraph (A) shall be based on the average 

9 number of employees that it is reasonably ex10 pected such employer will employ on business 

11 days in the current taxable year. 

12 ‘‘(C) SPECIAL RULES.—

13 ‘‘(i) CONTROLLED GROUPS.—For pur14 poses of this paragraph, all persons treated 

15 as a single employer under subsection (b), 

16 (c), (m), or (o) of section 414 shall be 

17 treated as 1 employer. 

18 ‘‘(ii) PREDECESSORS.—Any reference 

19 in this paragraph to an employer shall in20 clude a reference to any predecessor of 

21 such employer. 

22 ‘‘(2) QUALIFIED WATER CONSERVATION PROP23 ERTY.—The term ‘qualified water conservation prop24 erty’ has the meaning given to such term by section 

25 36(c)(2). 
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1 ‘‘(c) SPECIAL RULES.—For purposes of this sec2 tion—

3 ‘‘(1) IN GENERAL.—Rules similar to the rules 

4 of section 36(d) (other than paragraph (4) thereof) 

5 shall apply for purposes of this section. 

6 ‘‘(2) COORDINATION WITH CERTAIN CREDITS.—

7 ‘‘(A) The basis of any property referred to 

8 in subsection (a) shall be reduced by that por9 tion of the basis of any property which is attrib10 utable to qualified rehabilitation expenditures 

11 (as defined in section 47(c)(2)) or to the energy 

12 percentage of energy property (as determined 

13 under section 48(a)). 

14 ‘‘(B) Expenditures taken into account 

15 under section 47 or 48(a) shall not be taken 

16 into account under this section. 

17 ‘‘(3) DENIAL OF DOUBLE BENEFIT.—No deduc18 tion or credit shall be allowed under this chapter for 

19 any amount taken into account in determining the 

20 credit under this section. 

21 ‘‘(4) ELECTION NOT TO CLAIM CREDIT.—This 

22 section shall not apply to a taxpayer for any taxable 

23 year if such taxpayer elects to have this section not 

24 apply for such taxable year. 
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1 ‘‘(d) BASIS ADJUSTMENT.—For purposes of this sub2 title, if a credit is determined under this section for any 

3 expenditure with respect to any property, the increase in 

4 the basis of such property which would (but for this sub5 section) result from such expenditure shall be reduced by 

6 the amount of the credit so determined.’’. 

7 (b) CREDIT MADE PART OF GENERAL BUSINESS

8 CREDIT.—Section 38(b) of such Code (relating to current 

9 year business credit) is amended by striking ‘‘plus’’ at the 

10 end of paragraph (18), by striking the period at the end 

11 of paragraph (19) and inserting ‘‘, plus’’, and by adding 

12 at the end the following new paragraph: 

13 ‘‘(20) the commercial water conservation credit 

14 determined under section 45I(a).’’. 

15 (c) BASIS ADJUSTMENT.—Subsection (a) of section 

16 1016 of such Code is amended by striking ‘‘and’’ at the 

17 end of paragraph (31), by striking the period at the end 

18 of paragraph (32) and inserting ‘‘, and’’, and by adding 

19 at the end the following new paragraph: 

20 ‘‘(33) to the extent provided in section 45I(d), 

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

22 has been allowed under section 45I.’’. 

23 (d) CLERICAL AMENDMENT.—The table of sections 

24 for subpart D of part IV of subchapter A of chapter 1 
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1 of such Code is amended by adding at the end the fol2 lowing new item:

‘‘Sec. 45I. Commercial water conservation credit.’’.

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

4 this section shall apply to property placed in service after 

5 December 31, 2004.

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