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‘‘(D) $2,000 for property described in sub-
section (d)(5), and
‘‘(E) for property described in subsection
(d)(6)—
‘‘(i) $75 for each electric heat pump
water heater,
‘‘(ii) $250 for each electric heat pump,
‘‘(iii) $250 for each advanced natural
gas furnace,
‘‘(iv) $250 for each central air condi-
tioner,
‘‘(v) $75 for each natural gas water
heater, and
‘‘(vi) $250 for each geothermal heat
pump.
‘‘(2) SAFETY CERTIFICATIONS.—No credit shall
be allowed under this section for an item of property
unless—
‘‘(A) in the case of solar water heating
property, such property is certified for perform-
ance and safety by the non-profit Solar Rating
Certification Corporation or a comparable entity
endorsed by the government of the State in which
such property is installed,
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‘‘(B) in the case of a photovoltaic property,
a fuel cell property, or a wind energy property,
such property meets appropriate fire and electric
code requirements, and
‘‘(C) in the case of property described in
subsection (d)(6), such property meets the per-
formance and quality standards, and the certifi-
cation requirements (if any), which—
‘‘(i) have been prescribed by the Sec-
retary by regulations (after consultation
with the Secretary of Energy or the Admin-
istrator of the Environmental Protection
Agency, as appropriate),
‘‘(ii) in the case of the energy efficiency
ratio (EER)—
‘‘(I) require measurements to be
based on published data which is tested
by manufacturers at 95 degrees Fahr-
enheit, and
‘‘(II) do not require ratings to be
based on certified data of the Air Con-
ditioning and Refrigeration Institute,
and
‘‘(iii) are in effect at the time of the
acquisition of the property.
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‘‘(c) CARRYFORWARD
OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the limitation
imposed by section 26(a) for such taxable year reduced by
the sum of the credits allowable under this subpart (other
than this section and section 25D), such excess shall be car-
ried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable
year.
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED SOLAR WATER HEATING PROP-
ERTY EXPENDITURE.—The term ‘qualified solar water
heating property expenditure’ means an expenditure
for property to heat water for use in a dwelling unit
located in the United States and used as a residence
by the taxpayer if at least half of the energy used by
such property for such purpose is derived from the
sun.
‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX-
PENDITURE.—The term ‘qualified photovoltaic prop-
erty expenditure’ means an expenditure for property
that uses solar energy to generate electricity for use
in such a dwelling unit.
‘‘(3) SOLAR PANELS.—No expenditure relating to
a solar panel or other property installed as a roof (or
portion thereof) shall fail to be treated as property de-
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scribed in paragraph (1) or (2) solely because it con-
stitutes a structural component of the structure on
which it is installed.
‘‘(4) QUALIFIED FUEL CELL PROPERTY EXPENDI-
TURE.—The term ‘qualified fuel cell property expend-
iture’ means an expenditure for qualified fuel cell
property (as defined in section 48(a)(4)) installed on
or in connection with such a dwelling unit.
‘‘(5) QUALIFIED WIND ENERGY PROPERTY EX-
PENDITURE.—The term ‘qualified wind energy prop-
erty expenditure’ means an expenditure for property
which uses wind energy to generate electricity for use
in such a dwelling unit.
‘‘(6) QUALIFIED
TIER
ENERGY
EFFICIENT
BUILDING PROPERTY EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
Tier 2 energy efficient building property expend-
iture’ means an expenditure for any Tier 2 en-
ergy efficient building property.
‘‘(B) TIER 2 ENERGY EFFICIENT BUILDING
PROPERTY.—The term ‘Tier 2 energy efficient
building property’ means—
‘‘(i) an electric heat pump water heater
which yields an energy factor of at least 1.7
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in the standard Department of Energy test
procedure,
‘‘(ii) an electric heat pump which has
a heating seasonal performance factor
(HSPF) of at least 9, a seasonal energy effi-
ciency ratio (SEER) of at least 15, and an
energy efficiency ratio (EER) of at least
12.5,
‘‘(iii) an advanced natural gas furnace
which achieves at least 95 percent annual
fuel utilization efficiency (AFUE),
‘‘(iv) a central air conditioner which
has a seasonal energy efficiency ratio
(SEER) of at least 15 and an energy effi-
ciency ratio (EER) of at least 12.5,
‘‘(v) a natural gas water heater which
has an energy factor of at least 0.80 in the
standard Department of Energy test proce-
dure, and
‘‘(vi) a geothermal heat pump which
has an energy efficiency ratio (EER) of at
least 21.
‘‘(7) LABOR
COSTS.—Expenditures for labor
costs properly allocable to the onsite preparation, as-
sembly, or original installation of the property de-
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scribed in paragraph (1), (2), (4), (5), or (6) and for
piping or wiring to interconnect such property to the
dwelling unit shall be taken into account for purposes
of this section.
‘‘(8) SWIMMING POOLS, ETC., USED AS STORAGE
MEDIUM.—Expenditures which are properly allocable
to a swimming pool, hot tub, or any other energy
storage medium which has a function other than the
function of such storage shall not be taken into ac-
count for purposes of this section.
‘‘(e) SPECIAL RULES.—For purposes of this section—
‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OCCU-
PANCY.—In the case of any dwelling unit which is
jointly occupied and used during any calendar year
as a residence by 2 or more individuals the following
shall apply:
‘‘(A) The amount of the credit allowable,
under subsection (a) by reason of expenditures
(as the case may be) made during such calendar
year by any of such individuals with respect to
such dwelling unit shall be determined by treat-
ing all of such individuals as 1 taxpayer whose
taxable year is such calendar year.
‘‘(B) There shall be allowable, with respect
to such expenditures to each of such individuals,
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a credit under subsection (a) for the taxable year
in which such calendar year ends in an amount
which bears the same ratio to the amount deter-
mined under subparagraph (A) as the amount of
such expenditures made by such individual dur-
ing such calendar year bears to the aggregate of
such expenditures made by all of such individ-
uals 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 de-
fined in such section), such individual shall be treated
as having made his tenant-stockholder’s proportionate
share (as defined in section 216(b)(3)) of any expend-
itures of such corporation.
‘‘(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 the individual owns, such indi-
vidual shall be treated as having made the indi-
vidual’s proportionate share of any expenditures
of such association.
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‘‘(B) CONDOMINIUM MANAGEMENT ASSOCIA-
TION.—For purposes of this paragraph, the term
‘condominium management association’ means
an organization which meets the requirements of
paragraph (1) of section 528(c) (other than sub-
paragraph (E) thereof) with respect to a condo-
minium project substantially all of the units of
which are used as residences.
‘‘(4) ALLOCATION IN CERTAIN CASES.—Except in
the case of qualified wind energy property expendi-
tures, if less than 80 percent of the use of an item is
for nonbusiness purposes, only that portion of the ex-
penditures for such item which is properly allocable
to use for nonbusiness purposes shall be taken into ac-
count.
‘‘(5) WHEN
EXPENDITURE
MADE; AMOUNT
OF
EXPENDITURE.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), an expenditure with respect
to an item shall be treated as made when the
original installation of the item is completed.
‘‘(B) EXPENDITURES
PART
OF
BUILDING
CONSTRUCTION.—In the case of an expenditure
in connection with the construction or recon-
struction of a structure, such expenditure shall be
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treated as made when the original use of the con-
structed or reconstructed structure by the tax-
payer begins.
‘‘(C) AMOUNT.—The amount of any expend-
iture shall be the cost thereof.
‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN-
ERGY FINANCING.—For purposes of determining the
amount of expenditures made by any individual with
respect to any dwelling unit, there shall not be taken
in to account expenditures which are made from sub-
sidized energy financing (as defined in section
48(a)(5)(C)).
‘‘(f) BASIS ADJUSTMENTS.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the
basis of such property which would (but for this subsection)
result from such expenditure shall be reduced by the amount
of the credit so allowed.
‘‘(g) TERMINATION.—The credit allowed under this
section shall not apply to expenditures after December 31,
2007.’’.
(b) CREDIT ALLOWED AGAINST REGULAR TAX AND
ALTERNATIVE MINIMUM TAX.—
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(1) IN GENERAL.—Section 25C(b), as added by
subsection (a), is amended by adding at the end the
following new paragraph:
‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—
The credit allowed under subsection (a) for the tax-
able year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
‘‘(B) the sum of the credits allowable under
this subpart (other than this section and section
25D) and section 27 for the taxable year.’’.
(2) CONFORMING AMENDMENTS.—
(A) Section 25C(c), as added by subsection
(a), is amended by striking ‘‘section 26(a) for
such taxable year reduced by the sum of the cred-
its allowable under this subpart (other than this
section and section 25D)’’ and inserting ‘‘sub-
section (b)(3)’’.
(B) Section 23(b)(4)(B) is amended by in-
serting ‘‘and section 25C’’ after ‘‘this section’’.
(C) Section 24(b)(3)(B) is amended by
striking ‘‘23 and 25B’’ and inserting ‘‘23, 25B,
and 25C’’.
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(D) Section 25(e)(1)(C) is amended by in-
serting ‘‘25C,’’ after ‘‘25B,’’.
(E) Section 25B(g)(2) is amended by strik-
ing ‘‘section 23’’ and inserting ‘‘sections 23 and
25C’’.
(F) Section 26(a)(1) is amended by striking
‘‘and 25B’’ and inserting ‘‘25B, and 25C’’.
(G) Section 904(h) is amended by striking
‘‘and 25B’’ and inserting ‘‘25B, and 25C’’.
(H) Section 1400C(d) is amended by strik-
ing ‘‘and 25B’’ and inserting ‘‘25B, and 25C’’.
(c) ADDITIONAL CONFORMING AMENDMENTS.—
(1) Section 23(c), as in effect for taxable years
beginning before January 1, 2004, is amended by
striking ‘‘section 1400C’’ and inserting ‘‘sections 25C
and 1400C’’.
(2) Section 25(e)(1)(C), as in effect for taxable
years beginning before January 1, 2004, is amended
by inserting ‘‘, 25Cs,’’ after ‘‘sections 23’’.
(3) Subsection (a) of section 1016, as amended
by this Act, is amended by striking ‘‘and’’ at the end
of paragraph (29), by striking the period at the end
of paragraph (30) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph:
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‘‘(31) to the extent provided in section 25C(f), in
the case of amounts with respect to which a credit has
been allowed under section 25C.’’.
(4) Section 1400C(d), as in effect for taxable
years beginning before January 1, 2004, is amended
by inserting ‘‘and section 25C’’ after ‘‘this section’’.
(5) The table of sections for subpart A of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 25B the following
new item:
‘‘Sec. 25C. Residential energy efficient property.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided by para-
graph (2), the amendments made by this section shall
apply to expenditures after December 31, 2002, in
taxable years ending after such date.
(2) SUBSECTION (b).—The amendments made by
subsection (b) shall apply to taxable years beginning
after December 31, 2003.
SEC. 2104. CREDIT FOR BUSINESS INSTALLATION OF QUALI-
FIED FUEL CELLS AND STATIONARY MICRO-
TURBINE POWER PLANTS.
(a) IN
GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property) is amended by striking
‘‘or’’ at the end of clause (i), by adding ‘‘or’’ at the end
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of clause (ii), and by inserting after clause (ii) the following
new clause:
‘‘(iii) qualified fuel cell property or
qualified microturbine property,’’.
(b) QUALIFIED FUEL CELL PROPERTY; QUALIFIED
MICROTURBINE PROPERTY.—Subsection (a) of section 48
is amended by redesignating paragraphs (4) and (5) as
paragraphs (5) and (6), respectively, and by inserting after
paragraph (3) the following new paragraph:
‘‘(4) QUALIFIED FUEL CELL PROPERTY; QUALI-
FIED
MICROTURBINE
PROPERTY.—For purposes of
this subsection—
‘‘(A) QUALIFIED FUEL CELL PROPERTY.—
‘‘(i) IN GENERAL.—The term ‘qualified
fuel cell property’ means a fuel cell power
plant that—
‘‘(I) generates at least 0.5 kilowatt
of electricity using an electrochemical
process, and
‘‘(II) has an electricity-only gen-
eration efficiency greater than 30 per-
cent.
‘‘(ii) LIMITATION.—In the case of
qualified fuel cell property placed in service
during the taxable year, the credit deter-
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mined under paragraph (1) for such year
with respect to such property shall not ex-
ceed an amount equal to the lesser of—
‘‘(I) 30 percent of the basis of such
property, or
‘‘(II) $500 for each 0.5 kilowatt of
capacity of such property.
‘‘(iii) FUEL CELL POWER PLANT.—The
term ‘fuel cell power plant’ means an inte-
grated system comprised of a fuel cell stack
assembly and associated balance of plant
components that converts a fuel into elec-
tricity using electrochemical means.
‘‘(iv) TERMINATION.—Such term shall
not include any property placed in service
after December 31, 2007.
‘‘(B) 
QUALIFIED
MICROTURBINE
PROP-
ERTY.—
‘‘(i) IN GENERAL.—The term ‘‘quali-
fied microturbine property’ means a sta-
tionary microturbine power plant which
has an electricity-only generation efficiency
not less than 26 percent at International
Standard Organization conditions.
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‘‘(ii) LIMITATION.—In the case of
qualified microturbine property placed in
service during the taxable year, the credit
determined under paragraph (1) for such
year with respect to such property shall not
exceed an amount equal to the lesser of—
‘‘(I) 10 percent of the basis of such
property, or
‘‘(II) $200 for each kilowatt of ca-
pacity of such property.
‘‘(iii) 
STATIONARY
MICROTURBINE
POWER
PLANT.—The 
term 
‘stationary
microturbine power plant means a system
comprising of a rotary engine which is ac-
tuated by the aerodynamic reaction or im-
pulse or both on radial or axial curved full-
circumferential-admission airfoils on a cen-
tral axial rotating spindle. Such system—
‘‘(I) commonly includes an air
compressor, combustor, gas pathways
which lead compressed air to the com-
bustor and which lead hot combusted
gases from the combustor to 1 or more
rotating turbine spools, which in turn
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drive the compressor and power output
shaft,
‘‘(II) includes a fuel compressor,
recuperator/regenerator, generator or
alternator, integrated combined cycle
equipment, cooling-heating-and-power
equipment, sound attenuation appa-
ratus, and power conditioning equip-
ment, and
‘‘(III) includes all secondary com-
ponents located between the existing in-
frastructure for fuel delivery and the
existing infrastructure for power dis-
tribution, including equipment and
controls for meeting relevant power
standards, such as voltage, frequency,
and power factors.
‘‘(iv) TERMINATION.—Such term shall
not include any property placed in service
after December 31, 2006.’’.
(c) LIMITATION.—Section 48(a)(2)(A) (relating to en-
ergy percentage) is amended to read as follows:
‘‘(A) IN GENERAL.—The energy percentage
is—
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‘‘(i) in the case of qualified fuel cell
property, 30 percent, and
‘‘(ii) in the case of any other energy
property, 10 percent.’’.
(d) CONFORMING AMENDMENTS.—
(A) Section 29(b)(3)(A)(i)(III) is amended
by striking ‘‘section 48(a)(4)(C)’’ and inserting
‘‘section 48(a)(5)(C)’’.
(B) Section 48(a)(1) is amended by insert-
ing ‘‘except as provided in subparagraph (A)(ii)
or (B)(ii) of paragraph (4),’’ before ‘‘the energy’’.
(e) EFFECTIVE DATE.—The amendments made by this
subsection shall apply to property placed in service after
December 31, 2002, under rules similar to the rules of sec-
tion 48(m) of the Internal Revenue Code of 1986 (as in
effect on the day before the date of the enactment of the Rev-
enue Reconciliation Act of 1990).
SEC. 2105. ENERGY EFFICIENT COMMERCIAL BUILDINGS
DEDUCTION.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 is amended by inserting after section 179A the following
new section:
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‘‘SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS
DEDUCTION.
‘‘(a) IN GENERAL.—There shall be allowed as a deduc-
tion for the taxable year an amount equal to the energy
efficient commercial building property expenditures made
by a taxpayer for the taxable year.
‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The amount
of energy efficient commercial building property expendi-
tures taken into account under subsection (a) shall not ex-
ceed an amount equal to the product of—
‘‘(1) $2.25, and
‘‘(2) the square footage of the building with re-
spect to which the expenditures are made.
‘‘(c) YEAR DEDUCTION ALLOWED.—The deduction
under subsection (a) shall be allowed in the taxable year
in which the construction of the building is completed.
‘‘(d) ENERGY
EFFICIENT
COMMERCIAL
BUILDING
PROPERTY EXPENDITURES.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘energy efficient
commercial building property expenditures’ means an
amount paid or incurred for energy efficient commer-
cial building property installed on or in connection
with new construction or reconstruction of property—
‘‘(A) for which depreciation is allowable
under section 167,
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‘‘(B) which is located in the United States,
and
‘‘(C) the construction or erection of which is
completed by the taxpayer.
Such property includes all residential rental prop-
erty, including low-rise multifamily structures and
single family housing property which is not within
the scope of Standard 90.1–1999 (described in para-
graph (2)). Such term includes expenditures for labor
costs properly allocable to the onsite preparation, as-
sembly, or original installation of the property.
‘‘(2) ENERGY EFFICIENT COMMERCIAL BUILDING
PROPERTY.—For purposes of paragraph (1)—
‘‘(A) IN GENERAL.—The term ‘energy effi-
cient commercial building property’ means any
property which reduces total annual energy and
power costs with respect to the lighting, heating,
cooling, ventilation, and hot water supply sys-
tems of the building by 50 percent or more in
comparison to a reference building which meets
the requirements of Standard 90.1–1999 of the
American Society of Heating, Refrigerating, and
Air Conditioning Engineers and the Illu-
minating Engineering Society of North America
using methods of calculation under subpara-
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graph (B) and certified by qualified profes-
sionals as provided under paragraph (5).
‘‘(B) METHODS
OF
CALCULATION.—The
Secretary, in consultation with the Secretary of
Energy, shall promulgate regulations which de-
scribe in detail methods for calculating and
verifying energy and power consumption and
cost, taking into consideration the provisions of
the 2001 California Nonresidential Alternative
Calculation Method Approval Manual. These reg-
ulations shall meet the following requirements:
‘‘(i) In calculating tradeoffs and en-
ergy performance, the regulations shall pre-
scribe the costs per unit of energy and
power, such as kilowatt hour, kilowatt, gal-
lon of fuel oil, and cubic foot or Btu of nat-
ural gas, which may be dependent on time
of usage.
‘‘(ii) The calculational methodology
shall require that compliance be dem-
onstrated for a whole building. If some sys-
tems of the building, such as lighting, are
designed later than other systems of the
building, the method shall provide that
either—
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‘‘(I) the expenses taken into ac-
count under paragraph (1) shall not
occur until the date designs for all en-
ergy-using systems of the building are
completed,
‘‘(II) the energy performance of
all systems and components not yet de-
signed shall be assumed to comply
minimally with the requirements of
such Standard 90.1–1999, or
‘‘(III) the expenses taken into ac-
count under paragraph (1) shall be a
fraction of such expenses based on the
performance of less than all energy-
using systems in accordance with
clause (iii).
‘‘(iii) The expenditures in connection
with the design of subsystems in the build-
ing, such as the envelope, the heating, ven-
tilation, air conditioning and water heating
system, and the lighting system shall be al-
located to the appropriate building sub-
system based on system-specific energy cost
savings targets in regulations promulgated
by the Secretary of Energy which are equiv-
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alent, using the calculation methodology, to
the whole building requirement of 50 per-
cent savings.
‘‘(iv) The calculational methods under
this subparagraph need not comply fully
with section 11 of such Standard 90.1–
1999.
‘‘(v) The calculational methods shall be
fuel neutral, such that the same energy effi-
ciency features shall qualify a building for
the deduction under this subsection regard-
less of whether the heating source is a gas
or oil furnace or an electric heat pump.
‘‘(vi) The calculational methods shall
provide appropriate calculated energy sav-
ings for design methods and technologies not
otherwise credited in either such Standard
90.1–1999 or in the 2001 California Non-
residential Alternative Calculation Method
Approval Manual, including the following:
‘‘(I) Natural ventilation.
‘‘(II) Evaporative cooling.
‘‘(III) Automatic lighting controls
such as occupancy sensors, photocells,
and timeclocks.
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‘‘(IV) Daylighting.
‘‘(V) Designs utilizing semi-condi-
tioned spaces that maintain adequate
comfort conditions without air condi-
tioning or without heating.
‘‘(VI) Improved fan system effi-
ciency, including reductions in static
pressure.
‘‘(VII) Advanced unloading mech-
anisms for mechanical cooling, such as
multiple or variable speed compressors.
‘‘(VIII) The calculational methods
may take into account the extent of
commissioning in the building, and
allow the taxpayer to take into account
measured performance that exceeds
typical performance.
‘‘(C) COMPUTER SOFTWARE.—
‘‘(i) IN
GENERAL.—Any calculation
under this paragraph shall be prepared by
qualified computer software.
‘‘(ii) QUALIFIED
COMPUTER
SOFT-
WARE.—For purposes of this subparagraph,
the term ‘qualified computer software’
means software—
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‘‘(I) for which the software de-
signer has certified that the software
meets all procedures and detailed meth-
ods for calculating energy and power
consumption and costs as required by
the Secretary,
‘‘(II) which provides such forms
as required to be filed by the Secretary
in connection with energy efficiency of
property and the deduction allowed
under this subsection, and
‘‘(III) which provides a notice
form which summarizes the energy effi-
ciency features of the building and its
projected annual energy costs.
‘‘(3) ALLOCATION
OF
DEDUCTION
FOR
PUBLIC
PROPERTY.—In the case of energy efficient commer-
cial building property installed on or in public prop-
erty, the Secretary shall promulgate a regulation to
allow the allocation of the deduction to the person
primarily responsible for designing 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 subsection.
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‘‘(4) NOTICE
TO
OWNER.—The qualified indi-
vidual shall provide an explanation to the owner of
the building regarding the energy efficiency features
of the building and its projected annual energy costs
as 
provided 
in 
the 
notice 
under 
paragraph
(2)(C)(ii)(III).
‘‘(5) CERTIFICATION.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, the Secretary shall prescribe pro-
cedures for the inspection and testing for compli-
ance of buildings that are comparable, given the
difference between commercial and residential
buildings, to the requirements in the Mortgage
Industry National Accreditation Procedures for
Home Energy Rating Systems.
‘‘(B) QUALIFIED
INDIVIDUALS.—Individ-
uals qualified 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
Ratings Systems Organization, a local building
code agency, a State or local energy office, a util-
ity, or any other organization which meets the
requirements prescribed under this section.
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‘‘(C) PROFICIENCY OF QUALIFIED INDIVID-
UALS.—The Secretary shall consult with non-
profit organizations and State agencies with ex-
pertise in energy efficiency calculations and in-
spections to develop proficiency tests and train-
ing programs to qualify individuals to determine
compliance.
‘‘(e) BASIS REDUCTION.—For purposes of this subtitle,
if a deduction is allowed under this section with respect
to any energy efficient commercial building property, the
basis of such property shall be reduced by the amount of
the deduction so allowed.
‘‘(f) REGULATIONS.—The Secretary shall promulgate
such regulations as necessary to take into account new tech-
nologies regarding energy efficiency and renewable energy
for purposes of determining energy efficiency and savings
under this section.
‘‘(g) TERMINATION.—This section shall not apply with
respect to any energy efficient commercial building prop-
erty expenditures in connection with property—
‘‘(1) the plans for which are not certified under
subsection (d)(5) on or before December 31, 2007, and
‘‘(2) the construction of which is not completed
on or before December 31, 2009.’’.
(b) CONFORMING AMENDMENTS.—
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(1) Section 1016(a), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(30), by striking the period at the end of paragraph
(31) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(32) to the extent provided in section 179B(e).’’.
(2) Section 1245(a) is amended by inserting
‘‘179B,’’ after ‘‘179A,’’ both places it appears in
paragraphs (2)(C) and (3)(C).
(3) Section 1250(b)(3) is amended by inserting
before the period at the end of the first sentence ‘‘or
by section 179B’’.
(4) Section 263(a)(1) is amended by striking
‘‘or’’ at the end of subparagraph (G), by striking the
period at the end of subparagraph (H) and inserting
‘‘, or’’, and by inserting after subparagraph (H) the
following new subparagraph:
‘‘(I) expenditures for which a deduction is
allowed under section 179B.’’.
(5) Section 312(k)(3)(B) is amended by striking
‘‘or 179A’’ each place it appears in the heading and
text and inserting ‘‘, 179A, or 179B’’.
(c) CLERICAL AMENDMENT.—The table of sections for
part VI of subchapter B of chapter 1 is amended by insert-
ing after section 179A the following new item:
‘‘Sec. 179B. Energy efficient commercial buildings deduction.’’.
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(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Sep-
tember 30, 2002.
SEC. 2106. ALLOWANCE OF DEDUCTION FOR QUALIFIED
NEW OR RETROFITTED ENERGY MANAGE-
MENT DEVICES.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 (relating to itemized deductions for individuals and cor-
porations), as amended by this Act, is amended by inserting
after section 179B the following new section:
‘‘SEC. 179C. DEDUCTION FOR QUALIFIED NEW OR RETRO-
FITTED ENERGY MANAGEMENT DEVICES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of a
taxpayer who is a supplier of electric energy or natural
gas or a provider of electric energy or natural gas services,
there shall be allowed as a deduction an amount equal to
the cost of each qualified energy management device placed
in service during the taxable year.
‘‘(b) MAXIMUM DEDUCTION.—The deduction allowed
by this section with respect to each qualified energy man-
agement device shall not exceed $30.
‘‘(c) QUALIFIED ENERGY MANAGEMENT DEVICE.—The
term ‘qualified energy management device’ means any tan-
gible property to which section 168 applies if such property
is a meter or metering device—
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‘‘(1) which is acquired and used by the taxpayer
to enable consumers to manage their purchase or use
of electricity or natural gas in response to energy
price and usage signals, and
‘‘(2) which permits reading of energy price and
usage signals on at least a daily basis.
‘‘(d) PROPERTY USED OUTSIDE THE UNITED STATES
NOT QUALIFIED.—No deduction shall be allowed under sub-
section (a) with respect to property which is used predomi-
nantly outside the United States or with respect to the por-
tion of the cost of any property taken into account under
section 179.
‘‘(e) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title, the
basis of any property shall be reduced by the amount
of the deduction with respect to such property which
is allowed by subsection (a).
‘‘(2) ORDINARY INCOME RECAPTURE.—For pur-
poses of section 1245, the amount of the deduction al-
lowable under subsection (a) with respect to any
property that is of a character subject to the allow-
ance for depreciation shall be treated as a deduction
allowed for depreciation under section 167.’’.
(b) CONFORMING AMENDMENTS.—
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(1) Section 263(a)(1), as amended by this Act, is
amended by striking ‘‘or’’ at the end of subparagraph
(H), by striking the period at the end of subpara-
graph (I) and inserting ‘‘, or’’, and by inserting after
subparagraph (I) the following new subparagraph:
‘‘(J) expenditures for which a deduction is
allowed under section 179C.’’.
(2) Section 312(k)(3)(B), as amended by this
Act, is amended by striking ‘‘or 179B’’ each place it
appears in the heading and text and inserting ‘‘,
179B, or 179C’’.
(3) Section 1016(a), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(31), by striking the period at the end of paragraph
(32) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(33) 
to 
the 
extent 
provided 
in 
section
179C(e)(1).’’.
(4) Section 1245(a), as amended by this Act, is
amended by inserting ‘‘179C,’’ after ‘‘179B,’’ both
places it appears in paragraphs (2)(C) and (3)(C).
(5) The table of contents for subpart B of part
IV of subchapter A of chapter 1, as amended by this
Act, is amended by inserting after the item relating
to section 179B the following new item:
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‘‘Sec. 179C. Deduction for qualified new or retrofitted energy man-
agement devices.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to qualified energy management devices
placed in service after the date of the enactment of this Act,
in taxable years ending after such date.
SEC. 2107. THREE-YEAR APPLICABLE RECOVERY PERIOD
FOR DEPRECIATION OF QUALIFIED ENERGY
MANAGEMENT DEVICES.
(a) IN
GENERAL.—Subparagraph (A) of section
168(e)(3) (relating to classification of property) is amended
by striking ‘‘and’’ at the end of clause (ii), by striking the
period at the end of clause (iii) and inserting ‘‘, and’’, and
by adding at the end the following new clause:
‘‘(iv) any qualified energy manage-
ment device.’’.
(b) DEFINITION OF QUALIFIED ENERGY MANAGEMENT
DEVICE.—Section 168(i) (relating to definitions and spe-
cial rules) is amended by inserting at the end the following
new paragraph:
‘‘(15) QUALIFIED
ENERGY
MANAGEMENT
DE-
VICE.—The term ‘qualified energy management de-
vice’ means any qualified energy management device
as defined in section 179C(c) which is placed in serv-
ice by a taxpayer who is a supplier of electric energy
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or natural gas or a provider of electric energy or nat-
ural gas services.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act, in taxable years ending
after such date.
SEC. 2108. ENERGY CREDIT FOR COMBINED HEAT AND
POWER SYSTEM PROPERTY.
(a) IN
GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property), as amended by this
Act, is amended by striking ‘‘or’’ at the end of clause (ii),
by adding ‘‘or’’ at the end of clause (iii), and by inserting
after clause (iii) the following new clause:
‘‘(iv) combined heat and power system
property,’’.
(b) COMBINED HEAT
AND POWER SYSTEM PROP-
ERTY.—Subsection (a) of section 48, as amended by this
Act, is amended by redesignating paragraphs (5) and (6)
as paragraphs (6) and (7), respectively, and by inserting
after paragraph (4) the following new paragraph:
‘‘(5) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—For purposes of this subsection—
‘‘(A) COMBINED HEAT AND POWER SYSTEM
PROPERTY.—The term ‘combined heat and power
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system property’ means property comprising a
system—
‘‘(i) which uses the same energy source
for the simultaneous or sequential genera-
tion of electrical power, mechanical shaft
power, or both, in combination with the
generation of steam or other forms of useful
thermal energy (including heating and cool-
ing applications),
‘‘(ii) which has an electrical capacity
of more than 50 kilowatts or a mechanical
energy capacity of more than 67 horsepower
or an equivalent combination of electrical
and mechanical energy capacities,
‘‘(iii) which produces—
‘‘(I) at least 20 percent of its total
useful energy in the form of thermal
energy, and
‘‘(II) at least 20 percent of its
total useful energy in the form of elec-
trical or mechanical power (or com-
bination thereof),
‘‘(iv) the energy efficiency percentage
of which exceeds 60 percent (70 percent in
the case of a system with an electrical ca-
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pacity in excess of 50 megawatts or a me-
chanical energy capacity in excess of 67,000
horsepower, or an equivalent combination of
electrical and mechanical energy capac-
ities), and
‘‘(v) which is placed in service after
December 31, 2002, and before January 1,
2007.
‘‘(B) SPECIAL RULES.—
‘‘(i) ENERGY
EFFICIENCY
PERCENT-
AGE.—For 
purposes 
of 
subparagraph
(A)(iv), the energy efficiency percentage of a
system is the fraction—
‘‘(I) the numerator of which is the
total useful electrical, thermal, and me-
chanical power produced by the system
at normal operating rates, and ex-
pected to be consumed in its normal
application, and
‘‘(II) the denominator of which is
the lower heating value of the primary
fuel source for the system.
‘‘(ii) DETERMINATIONS MADE ON BTU
BASIS.—The energy efficiency percentage
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and the percentages under subparagraph
(A)(iii) shall be determined on a Btu basis.
‘‘(iii) INPUT AND OUTPUT PROPERTY
NOT INCLUDED.—The term ‘combined heat
and power system property’ does not in-
clude property used to transport the energy
source to the facility or to distribute energy
produced by the facility.
‘‘(iv) PUBLIC UTILITY PROPERTY.—
‘‘(I) ACCOUNTING RULE FOR PUB-
LIC UTILITY PROPERTY.—If the com-
bined heat and power system property
is public utility property (as defined
in section 168(i)(10)), the taxpayer
may only claim the credit under the
subsection if, with respect to such prop-
erty, the taxpayer uses a normalization
method of accounting.
‘‘(II) CERTAIN EXCEPTION NOT TO
APPLY.—The matter following para-
graph (3)(D) shall not apply to com-
bined heat and power system property.
‘‘(v) NONAPPLICATION
OF
CERTAIN
RULES.—For purposes of determining if the
term ‘combined heat and power system
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property’ includes technologies which gen-
erate electricity or mechanical power using
back-pressure steam turbines in place of ex-
isting pressure-reducing valves or which
make use of waste heat from industrial
processes such as by using organic rankin,
stirling, or kalina heat engine systems, sub-
paragraph (A) shall be applied without re-
gard to clauses (iii) and (iv) thereof.
‘‘(C) EXTENSION OF DEPRECIATION RECOV-
ERY PERIOD.—If a taxpayer is allowed credit
under this section for combined heat and power
system property and such property would (but
for this subparagraph) have a class life of 15
years or less under section 168, such property
shall be treated as having a 22-year class life for
purposes of section 168.’’.
(c) NO CARRYBACK OF ENERGY CREDIT BEFORE EF-
FECTIVE DATE.—Subsection (d) of section 39, as amended
by this Act, is amended by adding at the end the following
new paragraph:
‘‘(15) NO CARRYBACK OF ENERGY CREDIT BE-
FORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the energy credit with respect to property
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described in section 48(a)(5) may be carried back to
a taxable year ending before January 1, 2003.’’.
(d) CONFORMING AMENDMENTS.—
(A) Section 25C(e)(6), as added by this Act,
is amended by striking ‘‘section 48(a)(5)(C)’’
and inserting ‘‘section 48(a)(6)(C)’’.
(B) Section 29(b)(3)(A)(i)(III), as amended
by this Act, is amended by striking ‘‘section
48(a)(5)(C)’’ 
and 
inserting 
‘‘section
48(a)(6)(C)’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after De-
cember 31, 2002, in taxable years ending after such date.
SEC. 2109. CREDIT FOR ENERGY EFFICIENCY IMPROVE-
MENTS TO EXISTING HOMES.
(a) IN GENERAL.—Subpart A of part IV of subchapter
A of chapter 1 (relating to nonrefundable personal credits),
as amended by this Act, is amended by inserting after sec-
tion 25C the following new section:
‘‘SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST-
ING HOMES.
‘‘(a) ALLOWANCE OF CREDIT.—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 10 percent of the amount paid or incurred by the
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taxpayer for qualified energy efficiency improvements in-
stalled during such taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—The credit allowed by
this section with respect to a dwelling shall not exceed
$300.
‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER ON
SAME DWELLING TAKEN INTO ACCOUNT.—If a credit
was allowed to the taxpayer under subsection (a) with
respect to a dwelling in 1 or more prior taxable years,
the amount of the credit otherwise allowable for the
taxable year with respect to that dwelling shall not
exceed the amount of $300 reduced by the sum of the
credits allowed under subsection (a) to the taxpayer
with respect to the dwelling for all prior taxable
years.
‘‘(c) CARRYFORWARD
OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the limitation
imposed by section 26(a) for such taxable year reduced by
the sum of the credits allowable under this subpart (other
than this section) for any taxable year, such excess shall
be carried to the succeeding taxable year and added to the
credit allowable under subsection (a) for such succeeding
taxable year.
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‘‘(d) QUALIFIED
ENERGY
EFFICIENCY
IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified
energy efficiency improvements’ means any energy efficient
building envelope component which is certified to meet or
exceed the prescriptive criteria for such component in the
2000 International Energy Conservation Code, any energy
efficient building envelope component which is described in
subsection (f)(4)(B) and is certified by the Energy Star pro-
gram managed jointly by the Environmental Protection
Agency and the Department of Energy, or any combination
of energy efficiency measures which are certified as achiev-
ing at least a 30 percent reduction in heating and cooling
energy usage for the dwelling (as measured in terms of en-
ergy cost to the taxpayer), if—
‘‘(1) such component or combination of measures
is installed in or on a dwelling—
‘‘(A) located in the United States, and
‘‘(B) owned and used by the taxpayer as the
taxpayer’s principal residence (within the mean-
ing of section 121),
‘‘(2) the original use of such component or com-
bination of measures commences with the taxpayer,
and