I
107TH CONGRESS
1ST SESSION
H. R. 3455
To amend the Internal Revenue Code of 1986 to provide incentives to
introduce new technologies to reduce energy consumption in buildings.
IN THE HOUSE OF REPRESENTATIVES
DECEMBER 11, 2001
Mr. MARKEY (for himself and Mr. CUNNINGHAM) 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 to introduce new technologies to reduce energy
consumption in buildings.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. INCENTIVE FOR CERTAIN ENERGY EFFICIENT
PROPERTY USED IN BUSINESS.
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 is amended
by adding at the end the following new section:
‘‘SEC. 199. ENERGY PROPERTY DEDUCTION.
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction for the taxable year an amount equal to the energy
efficient residential rental building property expenditures
made by a taxpayer for the taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM AMOUNT OF DEDUCTION.—The
amount of energy efficient residential rental building
property expenditures taken into account under sub-
section (a) with respect to each dwelling unit shall
not exceed the amount specified in the following
table:
Deduction
‘‘In the case of:
amount:
30 percent property .................................................................
$1,500
50 percent property .................................................................
$4,000.
‘‘(2) YEAR DEDUCTION ALLOWED.—The deduc-
tion under subsection (a) shall be allowed in the tax-
able year in which the construction, reconstruction,
or repair of the property is completed.
‘‘(c) ENERGY EFFICIENT RESIDENTIAL RENTAL
BUILDING PROPERTY EXPENDITURES.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘energy efficient
residential rental building property expenditures’
means an amount paid or incurred in connection
with construction, reconstruction, or repair of energy
efficient residential rental building property—
‘‘(A) for which depreciation is allowable
under section 167,
‘‘(B) which is located in the United States,
and
‘‘(C) the construction, reconstruction, or
repair of which is completed by the taxpayer.
Such term includes expenditures for labor costs
properly allocable to the onsite preparation, assem-
bly, or original installation of the property.
‘‘(2) ENERGY EFFICIENT RESIDENTIAL RENTAL
BUILDING PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘energy effi-
cient residential rental building property’ means
any property which reduces total annual energy
and power costs with respect to heating and
cooling of the building by 50 percent or more
in the case of 50 percent property or 30 percent
or more in the case of 30 percent property in
comparison to the projected energy cost of such
property without such expenditures. Such com-
parison shall be made using the procedures
under subparagraph (B).
‘‘(B) PROCEDURES.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), energy usage and costs
shall be demonstrated either by a compo-
of the procedures and methods for calcu-
lating energy savings reductions that are
promulgated by the Secretary of Energy.
Such regulations on the specifications for
software and verification protocols shall be
based on the 2001 California Residential
Alternative Calculation Method Approval
Manual.
‘‘(v) CALCULATION REQUIREMENTS.—
In calculating tradeoffs and energy per-
formance, the regulations prescribed under
this subparagraph shall prescribe for the
taxable year the costs per unit of energy
and power, such as kilowatt hour, kilowatt,
gallon of fuel oil, and cubic foot or Btu of
natural gas, which may be dependent on
time of usage. Such costs shall be based
on average current and future costs to the
consumer.
‘‘(vi) APPROVAL OF SOFTWARE SUB-
MISSIONS.—The Secretary shall approve
software submissions that comply with the
requirements of clause (iv).
‘‘(vii) PROCEDURES FOR INSPECTION
AND TESTING OF HOMES.—The Secretary
shall ensure that procedures for the inspec-
tion and testing for compliance comply
with the calculation requirements under
clause (iv).
‘‘(C) DETERMINATIONS OF COMPLIANCE.—
A determination of compliance with respect to
energy efficient residential rental building prop-
erty made for the purposes of this paragraph
shall be filed with the Secretary not later than
1 year after the date of such determination and
shall include the TIN of the certifier, the ad-
dress of the building in compliance, and the
identity of the person for whom such deter-
mination was performed. Determinations of
compliance filed with the Secretary shall be
available for inspection by the Secretary of En-
ergy.
‘‘(D) COMPLIANCE.—
‘‘(i) IN GENERAL.—The Secretary, in
consultation with the Secretary of Energy
shall establish requirements for certifi-
cation and compliance procedures after ex-
amining the requirements for energy con-
sultants and home energy ratings providers
specified by the Mortgage Industry Na-
tional Accreditation Procedures for Home
Energy Rating Systems.
‘‘(ii) INDIVIDUALS QUALIFIED TO DE-
TERMINE COMPLIANCE.—Individuals quali-
fied to determine compliance shall be only
those individuals who are recognized by an
organization certified by the Secretary for
such purposes. The Secretary may qualify
a Home Energy Rating Systems Organiza-
tion, a local building code agency, a State
or local energy office, a utility, or other or-
ganizations which meet the requirements
prescribed under this section.
‘‘(4) ALLOCATION OF DEDUCTION FOR PUBLIC
PROPERTY.—In the case of energy efficient residen-
tial rental building property which is public prop-
erty, the Secretary shall promulgate a regulation to
allow the allocation of the deduction to the person
primarily responsible for designing the improvements
to the property in lieu of the public entity which is
the owner of such property. Such person shall be
treated as the taxpayer for purposes of this sub-
section.
‘‘(d) BASIS REDUCTION.—For purposes of this sub-
title, if a deduction is allowed under this section with re-
spect to any property, the basis of such property shall be
reduced by the amount of the deduction so allowed.
‘‘(e) REGULATIONS.—The Secretary shall promulgate
such regulations as necessary to take into account new
technologies regarding energy efficiency and renewable en-
ergy for purposes of determining energy efficiency and
savings under this section.
‘‘(f) TERMINATION.—This section shall not apply
with respect to any property placed in service, or construc-
tion, reconstruction, repair, or erection completed, after
December 31, 2007.’’.
(b) CONFORMING AMENDMENT.—Section 1016(a) of
the Internal Revenue Code of 1986 is amended by striking
‘‘and’’ at the end of paragraph (26), by striking the period
at the end of paragraph (27) and inserting ‘‘, and’’, and
by inserting the following new paragraph:
‘‘(28) for amounts allowed as a deduction under
section 199(a).’’.
(c) CLERICAL AMENDMENT.—The table of sections
for part VI of subchapter B of chapter 1 of the Internal
Revenue Code of 1986 is amended by adding at the end
the following new item:
‘‘Sec. 199. Energy property deduction.’’.
(d) AUTHORIZATION
OF APPROPRIATIONS.—There
are authorized to be appropriated to the Department of
Energy out of amounts not already appropriated such
sums as necessary to carry out this section.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service, or
construction, reconstruction, repair, or erection completed,
in taxable years beginning after December 31, 2001.
SEC. 2. CREDIT FOR CERTAIN NONBUSINESS ENERGY
PROPERTY.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of
1986 (relating to nonrefundable personal credits) is
amended by inserting after section 25B the following new
section:
‘‘SEC. 25C. HIGHLY ENERGY-EFFICIENT NONBUSINESS EN-
ERGY PROPERTY.
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) IN
GENERAL.—In the case of an indi-
vidual, there shall be allowed as a credit against the
tax imposed by this chapter for the taxable year an
amount equal to the amount of residential energy
property expenditures made by the taxpayer for the
taxable year.
‘‘(2) LIMITATION.—The credit allowed under
paragraph (1) with respect to a residence of a tax-
payer shall not exceed the amount specified in the
following table:
‘‘Highly energy-efficient property:
Credit amount:
30 percent property ...........................................................................
$500
50 percent property ........................................................................... $1,250.
‘‘(3) YEAR
CREDIT
ALLOWED.—The credit
under paragraph (1) shall be allowed for the taxable
year in which the principal residence of the taxpayer
is certified as 50 percent property or 30 percent
property.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) RESIDENTIAL
ENERGY
PROPERTY
EX-
PENDITURES.—The term ‘residential energy prop-
erty expenditures’ means expenditures made by the
taxpayer in connection with the construction, recon-
struction, or repair of a dwelling unit of the tax-
payer which results in the unit being a highly en-
ergy-efficient principal residence. Such term includes
expenditures for labor costs properly allocable to the
onsite preparation, assembly, or original installation
of the property.
‘‘(2) HIGHLY
ENERGY-EFFICIENT
PRINCIPAL
RESIDENCE.—
‘‘(A) IN GENERAL.—Property is a highly
energy-efficient principal residence if—
‘‘(i) such property is located in the
United States,
‘‘(ii) the property is the principal resi-
dence of the taxpayer, and
‘‘(iii) such property is certified as
being 50 percent property or 30 percent
property.
‘‘(B) 50 OR 30 PERCENT PROPERTY.—
‘‘(i) IN
GENERAL.—For purposes of
subparagraph (A), property is 50 percent
property or 30 percent property if the pro-
jected heating and cooling energy cost of
such property, measured in terms of aver-
age annual energy cost to taxpayer, is re-
duced by 50 percent, or 30 percent, respec-
tively, in comparison to the energy cost of
such property if expenditures made by the
taxpayer with respect to energy efficient
improvements to such property were not
made. Such comparison shall be deter-
mined using the procedures under clause
(ii).
‘‘(ii) PROCEDURES.—
‘‘(I) IN GENERAL.—For purposes
of clause (i), energy usage shall be
demonstrated either by a component-
based approach or a performance-
based approach.
‘‘(II) COMPONENT APPROACH.—
Component approach compliance shall
be demonstrated if all of the compo-
nents of the property comply with the
requirements of prescriptive packages
established by the Secretary of En-
ergy, in consultation with the Admin-
istrator of the Environmental Protec-
tion Agency, such that the majority of
the buildings which use such approach
achieve energy cost reductions equiva-
lent to the results of using the per-
formance-based approach under sub-
clause (III).
‘‘(III) PERFORMANCE-BASED AP-
PROACH.—Performance-based compli-
ance shall be demonstrated if the 30
percent or 50 percent energy cost sav-
ings for heating and cooling, as appli-
cable, are met with respect to a dwell-
ing unit when compared to the origi-
nal condition of the property.
‘‘(IV) COMPUTER
SOFTWARE.—
Computer software shall be used in
support of performance-based compli-
ance under subclause (III) and such
software shall meet all of the proce-
dures and methods for calculating en-
ergy savings reductions that are pro-
mulgated by the Secretary of Energy.
Such regulations on the specifications
for software and verification protocols
shall be based on the 2001 California
Residential 
Alternative 
Calculation
Method Approval Manual.
‘‘(3) PRINCIPAL RESIDENCE.—For purposes of
this section—
‘‘(A) IN
GENERAL.—The term ‘principal
residence’ has the same meaning as when used
in section 121, except that—
‘‘(i) no ownership requirement shall
be imposed, and
‘‘(ii) the period for which a building is
treated as the principal residence of the
taxpayer shall also include the 60-day pe-
riod ending on the 1st day on which it
would (but for this subparagraph) first be
treated as a principal residence.
‘‘(B) 
MANUFACTURED
HOUSING.—The
term ‘residence’ shall include a dwelling unit
which is manufactured housing.
‘‘(c) 
SPECIAL
RULES.—For 
purposes 
of 
this
section—
‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC-
CUPANCY.—In the case of any dwelling unit which if
jointly occupied and used during any calendar year
as a residence by 2 or more individuals the following
rules shall apply:
‘‘(A) The amount of the credit allowable
under subsection (a) by reason of expenditures
made during such calendar year by any of such
individuals with respect to such dwelling unit
shall be determined by treating all of such indi-
viduals as 1 taxpayer whose taxable year is
such calendar year.
‘‘(B) There shall be allowable with respect
to such expenditures to each of such individ-
uals, a credit under subsection (a) for the tax-
able year in which such calendar year ends in
an amount which bears the same ratio to the
amount determined under subparagraph (A) as
the amount of such expenditures made by such
individual during such calendar year bears to
the aggregate of such expenditures made by all
of such individuals during such calendar year.
‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE
HOUSING CORPORATION.—In the case of an indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as
defined in such section), such individual shall be
treated as having made his tenant-stockholder’s pro-
portionate share (as defined in section 216(b)(3)) of
any expenditures of such corporation and such credit
shall be allocated pro rata to such individual.
‘‘(3) CONDOMINIUMS.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be
treated as having made his proportionate share
of any expenditures of such association and any
credit shall be allocated appropriately.
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the
term ‘condominium management association’
means an organization which meets the require-
ments of paragraph (1) of section 528(c) (other
than subparagraph (E) thereof) with respect to
a condominium project substantially all of the
units of which are used as residences.
‘‘(4) JOINT OWNERSHIP OF ENERGY ITEMS.—
‘‘(A) IN GENERAL.—Any expenditure oth-
erwise qualifying as a residential energy prop-
erty expenditure shall not be treated as failing
to so qualify merely because such expenditure
was made with respect to 2 or more dwelling
units.
‘‘(B) LIMITS
APPLIED
SEPARATELY.—In
the case of any expenditure described in sub-
paragraph (A), the amount of the credit allow-
able under subsection (a) shall (subject to para-
graph (1)) be computed separately with respect
to the amount of the expenditure made for each
dwelling unit.
‘‘(5) ALLOCATION IN CERTAIN CASES.—If less
than 80 percent of the use of an item is for nonbusi-
ness purposes, only that portion of the expenditures
for such item which is properly allocable to use for
nonbusiness purposes shall be taken into account.
‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN-
ERGY FINANCING.—