122
SEC. 322. ENERGY EFFICIENT COMMERCIAL BUILDINGS DE-
DUCTION. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and 
corporations) is amended by inserting after section 179B 
the following new section: 
‘‘SEC. 179C. ENERGY EFFICIENT COMMERCIAL BUILDINGS 
DEDUCTION. 
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction an amount equal to the cost of energy efficient 
commercial building property placed in service during the 
taxable year. 
‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The de-
duction under subsection (a) with respect to any building 
for the taxable year and all prior taxable years shall not 
exceed an amount equal to the product of—
‘‘(1) $2.25, and 
‘‘(2) the square footage of the building. 
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ENERGY EFFICIENT COMMERCIAL BUILD-
ING PROPERTY.—The term ‘energy efficient commer-
cial building property’ means property—
‘‘(A) which is installed on or in any build-
ing located in the United States, 
‘‘(B) which is installed as part of—
‘‘(i) the interior lighting systems,
123
‘‘(ii) the heating, cooling, ventilation, 
and hot water systems, or 
‘‘(iii) the building envelope, and 
‘‘(C) which is certified in accordance with 
subsection (d)(6) as being installed as part of 
a plan designed to reduce the total annual en-
ergy and power costs with respect to the inte-
rior lighting systems, heating, cooling, ventila-
tion, and hot water systems of the building by 
50 percent or more in comparison to a ref-
erence building which meets the minimum re-
quirements of Standard 90.1–2001 using meth-
ods of calculation under subsection (d)(2). 
A building described in subparagraph (A) may in-
clude any residential rental property, including any 
low-rise multifamily structure or single family hous-
ing property which is not within the scope of Stand-
ard 90.1–2001, but shall not include any highly en-
ergy-efficient principal residence (within the mean-
ing of section 45J(b)) for which a credit under sec-
tion 45J has been allowed. 
‘‘(2) STANDARD 90.1–2001.—The term ‘Stand-
ard 90.1–2001’ means Standard 90.1–2001 of the 
American Society of Heating, Refrigerating, and Air 
Conditioning Engineers and the Illuminating Engi-
124
neering Society of North America (as in effect on 
April 2, 2003). 
‘‘(d) SPECIAL RULES.—
‘‘(1) PARTIAL ALLOWANCE.—
‘‘(A) IN GENERAL.—Except as provided in 
subsection (f), if—
‘‘(i) the requirement of subsection 
(c)(1)(C) is not met, but 
‘‘(ii) there is a certification in accord-
ance with paragraph (6) that any system 
referred to in subsection (c)(1)(B) satisfies 
the energy-savings targets established by 
the Secretary under subparagraph (B) 
with respect to such system, 
then the requirement of subsection (c)(1)(C) 
shall be treated as met with respect to such sys-
tem, and the deduction under subsection (a) 
shall be allowed with respect to energy efficient 
commercial building property installed as part 
of such system and as part of a plan to meet 
such targets, except that subsection (b) shall be 
applied to such property by substituting ‘$.75’ 
for ‘$2.25’. 
‘‘(B) REGULATIONS.—The Secretary, after 
consultation with the Secretary of Energy, shall
125
establish a target for each system described in 
subsection (c)(1)(B) which, if such targets were 
met for all such systems, the building would 
meet the requirements of subsection (c)(1)(C). 
‘‘(2) METHODS
OF
CALCULATION.—The Sec-
retary, after consultation with the Secretary of En-
ergy, shall promulgate regulations which describe in 
detail methods for calculating and verifying energy 
and power consumption and cost, based on the pro-
visions of the 2005 California Nonresidential Alter-
native Calculation Method Approval Manual or, in 
the case of residential property, the 2005 California 
Residential Alternative Calculation Method Approval 
Manual. These regulations shall meet the following 
requirements: 
‘‘(A) In calculating tradeoffs and energy 
performance, the regulations shall prescribe the 
costs per unit of energy and power, such as kil-
owatt hour, kilowatt, gallon of fuel oil, and 
cubic foot or Btu of natural gas, which may be 
dependent on time of usage. If a State has de-
veloped annual energy usage and cost calcula-
tion procedures based on time of usage costs for 
use in the performance standards of the State’s 
building energy code before the effective date of
126
this section, the State may use those annual en-
ergy usage and cost calculation procedures in 
lieu of those adopted by the Secretary. 
‘‘(B) The calculation methods under this 
paragraph need not comply fully with section 
11 of Standard 90.1–2001. 
‘‘(C) The calculation methods shall be fuel 
neutral, such that the same energy efficiency 
features shall qualify a building for the deduc-
tion under this section regardless of whether 
the heating source is a gas or oil furnace or an 
electric heat pump. The reference building for 
a proposed design which employs electric resist-
ance heating shall be modeled as using a heat 
pump. 
‘‘(D) The calculation methods shall provide 
appropriate calculated energy savings for design 
methods and technologies not otherwise credited 
in either Standard 90.1–2001 or in the 2005 
California Nonresidential Alternative Calcula-
tion Method Approval Manual, including the 
following: 
‘‘(i) Natural ventilation. 
‘‘(ii) Evaporative cooling.
127
‘‘(iii) Automatic lighting controls such 
as occupancy sensors, photocells, and time-
clocks. 
‘‘(iv) Daylighting. 
‘‘(v) Designs utilizing semi-condi-
tioned spaces which maintain adequate 
comfort conditions without air conditioning 
or without heating. 
‘‘(vi) Improved fan system efficiency, 
including reductions in static pressure. 
‘‘(vii) Advanced unloading mecha-
nisms for mechanical cooling, such as mul-
tiple or variable speed compressors. 
‘‘(viii) The calculation methods may 
take into account the extent of commis-
sioning in the building, and allow the tax-
payer to take into account measured per-
formance which exceeds typical perform-
ance. 
‘‘(ix) On-site generation of electricity, 
including combined heat and power sys-
tems, fuel cells, and renewable energy gen-
eration such as solar energy. 
‘‘(x) Wiring with lower energy losses 
than wiring satisfying Standard 90.1–2001
128
requirements for building power distribu-
tion systems. 
‘‘(3) COMPUTER SOFTWARE.—
‘‘(A) IN GENERAL.—Any calculation under 
paragraph (2) shall be prepared by qualified 
computer software. 
‘‘(B) QUALIFIED COMPUTER SOFTWARE.—
For purposes of this paragraph, the term 
‘qualified computer software’ means software—
‘‘(i) for which the software designer 
has certified that the software meets all 
procedures and detailed methods for calcu-
lating energy and power consumption and 
costs as required by the Secretary, 
‘‘(ii) which provides such forms as re-
quired to be filed by the Secretary in con-
nection with energy efficiency of property 
and the deduction allowed under this sec-
tion, and 
‘‘(iii) which provides a notice form 
which documents the energy efficiency fea-
tures of the building and its projected an-
nual energy costs. 
‘‘(4) ALLOCATION OF DEDUCTION FOR PUBLIC 
PROPERTY.—In the case of energy efficient commer-
129
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 tax-
payer for purposes of this section. 
‘‘(5) NOTICE
TO
OWNER.—Each certification 
required under this section shall include an expla-
nation to the building owner regarding the energy 
efficiency features of the building and its projected 
annual energy costs as provided in the notice under 
paragraph (3)(B)(iii). 
‘‘(6) CERTIFICATION.—
‘‘(A) IN
GENERAL.—The Secretary shall 
prescribe the manner and method for the mak-
ing of certifications under this section. 
‘‘(B) PROCEDURES.—The Secretary shall 
include as part of the certification process pro-
cedures for inspection and testing by qualified 
individuals described in subparagraph (C) to 
ensure compliance of buildings with energy-sav-
ings plans and targets. Such procedures shall 
be comparable, given the difference between 
commercial and residential buildings, to the re-
130
quirements in the Mortgage Industry National 
Accreditation Procedures for Home Energy 
Rating Systems. 
‘‘(C) 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. 
‘‘(e) BASIS REDUCTION.—For purposes of this sub-
title, if a deduction is allowed under this section with re-
spect to any energy efficient commercial building property, 
the basis of such property shall be reduced by the amount 
of the deduction so allowed. 
‘‘(f) INTERIM RULES
FOR LIGHTING SYSTEMS.—
Until such time as the Secretary issues final regulations 
under subsection (d)(1)(B) with respect to property which 
is part of a lighting system—
‘‘(1) IN GENERAL.—The lighting system target 
under subsection (d)(1)(A)(ii) shall be a reduction in 
lighting power density of 25 percent (50 percent in 
the case of a warehouse) of the minimum require-
ments in Table 9.3.1.1 or Table 9.3.1.2 (not includ-
ing additional interior lighting power allowances) of 
Standard 90.1–2001.
131
‘‘(2) REDUCTION IN DEDUCTION IF REDUCTION 
LESS THAN 40 PERCENT.—
‘‘(A) IN GENERAL.—If, with respect to the 
lighting system of any building other than a 
warehouse, the reduction in lighting power den-
sity of the lighting system is not at least 40 
percent, only the applicable percentage of the 
amount of deduction otherwise allowable under 
this section with respect to such property shall 
be allowed. 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of subparagraph (A), the applicable 
percentage is the number of percentage points 
(not greater than 100) equal to the sum of—
‘‘(i) 50, and 
‘‘(ii) the amount which bears the same 
ratio to 50 as the excess of the reduction 
of lighting power density of the lighting 
system over 25 percentage points bears to 
15. 
‘‘(C) EXCEPTIONS.—This subsection shall 
not apply to any system—
‘‘(i) the controls and circuiting of 
which do not comply fully with the manda-
tory and prescriptive requirements of
132
Standard 90.1–2001 and which do not in-
clude provision for bilevel switching in all 
occupancies except hotel and motel guest 
rooms, store rooms, restrooms, and public 
lobbies, or 
‘‘(ii) which does not meet the min-
imum requirements for calculated lighting 
levels as set forth in the Illuminating Engi-
neering Society of North America Lighting 
Handbook, Performance and Application, 
Ninth Edition, 2000. 
‘‘(g) COORDINATION
WITH
OTHER
TAX
BENE-
FITS.—
‘‘(1) NO
DOUBLE
BENEFIT.—No deduction 
shall be allowed under subsection (a) with respect to 
any building for which a credit under section 45J 
has been allowed. 
‘‘(2) SPECIAL RULE WITH RESPECT TO BUILD-
INGS WITH ENERGY EFFICIENT PROPERTY.—In any 
case in which a deduction under section 200 or a 
credit under section 25C has been allowed with re-
spect to property in connection with a building, the 
annual energy and power costs of the reference 
building referred to in subsection (c)(1)(C) shall be 
determined assuming such reference building con-
133
tains the property for which such deduction or credit 
has been allowed. 
‘‘(h) REGULATIONS.—The Secretary shall promul-
gate such regulations as necessary—
‘‘(1) to take into account new technologies re-
garding energy efficiency and renewable energy for 
purposes of determining energy efficiency and sav-
ings under this section, and 
‘‘(2) to provide for a recapture of the deduction 
allowed under this section if the plan described in 
subsection (c)(1)(C) or (d)(1)(A) is not fully imple-
mented. 
‘‘(i) TERMINATION.—This section shall not apply 
with respect to property placed in service after December 
31, 2010.’’. 
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking 
‘‘and’’ at the end of paragraph (33), by striking the 
period at the end of paragraph (34) and inserting ‘‘, 
and’’, and by adding at the end the following new 
paragraph: 
‘‘(35) to the extent provided in section 
179C(e).’’.
134
(2) Section 1245(a) is amended by inserting 
‘‘179C,’’ after ‘‘179B,’’ 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 179C’’. 
(4) Section 263(a)(1) is amended by striking 
‘‘or’’ at the end of subparagraph (H), by striking 
the period at the end of subparagraph (I) and in-
serting ‘‘, or’’, and by inserting after subparagraph 
(I) the following new subparagraph: 
‘‘(J) expenditures for which a deduction is 
allowed under section 179C.’’. 
(5) Section 312(k)(3)(B) is amended by strik-
ing ‘‘section 179, 179A, or 179B’’ each place it ap-
pears in the heading and text and inserting ‘‘section 
179, 179A, 179B, or 179C’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 is amended by 
inserting after the item relating to section 179B the fol-
lowing new item:
‘‘Sec. 179C. Energy efficient commercial buildings deduction.’’.
(d) 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 end-
ing after such date.
135
SEC. 323. CREDIT FOR CONSTRUCTION OF NEW HIGHLY EN-
ERGY-EFFICIENT HOMES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by inserting after section 45I the fol-
lowing: 
‘‘SEC. 45J. NEW HIGHLY ENERGY-EFFICIENT HOME CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, in 
the case of an eligible contractor, the credit determined 
under this section for the taxable year is an amount equal 
to the credit amount specified in the following table for 
a new, highly energy-efficient principal residence:
‘‘New, highly energy-efficient principal residence: 
Credit 
amount: 
30 percent property ........................................................................
$1,000
50 percent property ........................................................................
$2,000
‘‘(b) HIGHLY ENERGY-EFFICIENT PRINCIPAL RESI-
DENCE.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘highly energy-ef-
ficient principal residence’ means a dwelling—
‘‘(A) located in the United States, 
‘‘(B) the construction of which is substan-
tially completed after December 31, 2005, 
‘‘(C) the original use of which is as a prin-
cipal residence (within the meaning of section 
121) which commences with the person who ac-
136
quires such dwelling from the eligible con-
tractor, and 
‘‘(D) which is certified before such use 
commences as being 50 percent property or 30 
percent property. 
‘‘(2) 50 OR 30 PERCENT PROPERTY.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), property is 50 percent property or 
30 percent property if the projected heating and 
cooling energy usage of such property, meas-
ured in terms of average annual energy cost to 
taxpayer, is reduced by 50 percent, or 30 per-
cent, respectively, in comparison to the energy 
usage of the standard design reference house as 
determined using the procedures under sub-
paragraph (D). 
‘‘(B) 
STANDARD
DESIGN
REFERENCE 
HOUSE.—For purposes of this subsection, the 
term ‘standard design reference house’ means a 
dwelling which conforms with the standards of 
chapter 4 of the 2000 International Energy 
Conservation Code of the International Code 
Council and the minimum equipment efficiency 
standards promulgated by the Department of
137
Energy under the National Appliance Energy 
Conservation Act. 
‘‘(C) 
ENERGY
EFFICIENT
REFERENCE 
HOUSE.—For purposes of this paragraph, the 
term ‘energy efficient reference house’ means a 
design of a dwelling which uses the same heat-
ing fuel type as the proposed design and which 
uses minimum standards equipment, as re-
quired by the Department of Energy under the 
National Appliance Energy Conservation Act 
and which achieves, on average over fuel type 
and house geometry, the required 30 percent or 
50 percent reductions in annual energy cost as 
calculated using the procedures under subpara-
graph (D). 
‘‘(D) PROCEDURES.—
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A), energy usage shall be 
demonstrated either by a component-based 
approach or a performance-based ap-
proach. 
‘‘(ii) COMPONENT
APPROACH.—Com-
pliance by the component approach is 
achieved when all of the components of the 
house comply with the requirements of pre-
138
scriptive packages established by the Sec-
retary of Energy, in consultation with the 
Administrator of the Environmental Pro-
tection Agency, such that they are equiva-
lent, for the strong majority of houses 
which can use this method, to the results 
of using the performance-based approach 
of clause (iii) to achieve the required re-
duction in energy usage. 
‘‘(iii) 
PERFORMANCE-BASED
AP-
PROACH.—Performance-based 
compliance 
shall be demonstrated in terms of equiva-
lent or less energy usage when compared 
to the energy efficient reference house of 
the same heating fuel type as the dwelling 
concerned or through an alternate method 
prescribed by the Secretary which yields 
equivalent results. 
‘‘(iv) COMPUTER
SOFTWARE.—Com-
puter software shall be used in support of 
performance-based 
compliance 
under 
clause (iii) and such software shall meet all 
of the procedures and methods for calcu-
lating energy savings reductions that are 
promulgated by the Secretary of Energy.
139
Such regulations on the specifications for 
software and verification protocols shall be 
based on the 2005 California Residential 
Alternative Calculation Method Approval 
Manual. 
‘‘(v) FUEL PARITY.—In the case of 
both the component and the performance-
based approaches, and any software used 
in support of either such approach, the 
Secretary shall assure fuel parity by re-
quiring both the energy efficient reference 
house and the prescriptive package under 
clause (ii) to employ the same envelope en-
ergy efficiency measures for a house heat-
ed by a gas furnace as for a house heated 
by an electric air source heat pump or by 
an oil furnace or boiler; and, for equipment 
efficiency, to employ electric, oil, or gas 
equipment efficiency of corresponding effi-
ciency improvement. Such determination of 
corresponding efficiency improvement shall 
be made on a linear scale between the min-
imum standard equipment efficiency and 
the best available marketplace technology 
efficiency as determined by the Secretary
140
after considering the information provided 
by the Air Conditioning and Refrigeration 
Institute (ARI) and the Gas Appliance 
Manufacturers Association (GAMA) guides 
for the respective electric, oil, and natural 
gas equipment of such type (such as heat-
ing and cooling). 
‘‘(vi) APPROVAL OF SOFTWARE SUB-
MISSIONS.—The Secretary shall approve 
software submissions that comply with the 
calculation 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). 
‘‘(3) DETERMINATIONS
OF
COMPLIANCE.—A 
determination of compliance made for the purposes 
of this subsection shall be filed with the Secretary 
within 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 determination was per-
formed. Determinations of compliance filed with the
141
Secretary shall be available for inspection by the 
Secretary of Energy. 
‘‘(4) COMPLIANCE.—
‘‘(A) IN GENERAL.—The Secretary, in con-
sultation with the Secretary of Energy shall es-
tablish requirements for certification and com-
pliance procedures after examining the require-
ments for energy consultants and home energy 
ratings providers specified by the Mortgage In-
dustry National Accreditation Procedures for 
Home Energy Rating Systems. 
‘‘(B) INDIVIDUALS QUALIFIED TO DETER-
MINE
COMPLIANCE.—Individuals qualified to 
determine compliance shall be only those indi-
viduals who are recognized by an organization 
certified by the Secretary for such purposes. 
The Secretary may qualify a Home Energy 
Rating Systems Organization, a local building 
code agency, a State or local energy office, a 
utility, or other organizations which meet the 
requirements prescribed under this section. 
‘‘(5) FORM PROVIDED TO BUYER.—
‘‘(A) IN GENERAL.—A form documenting 
the energy-efficiency of the dwelling, including 
the rated energy efficiency performance of
142
equipment installed in the dwelling, shall be 
provided to the buyer of the dwelling. The form 
shall include labeled R-value for insulation 
products, NFRC-labeled U-factor and Solar 
Heat Gain Coefficient for windows, skylights, 
and doors, labeled AFUE ratings for furnaces 
and boilers, labeled HSPF ratings for electric 
heat pumps, and labeled SEER ratings for air 
conditioners. 
‘‘(B) RATINGS LABEL AFFIXED IN DWELL-
ING.—A permanent label documenting the rat-
ings in subparagraph (A) shall be affixed to the 
front of the electrical distribution panel of the 
dwelling, or shall be otherwise permanently dis-
played in a readily inspectable location in the 
dwelling. 
‘‘(c) ADDITIONAL DEFINITIONS.—For purposes of 
this section—
‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi-
ble contractor’ means the person who constructed 
the new energy-efficient home, or in the case of a 
manufactured home which conforms to Federal 
Manufactured Home Construction and Safety Stand-
ards (24 C.F.R. 3280), the manufactured home pro-
ducer of such home.
143
‘‘(2) CONSTRUCTION.—The term ‘construction’ 
includes reconstruction and rehabilitation. 
‘‘(3) ACQUIRE.—The term ‘acquire’ includes 
purchase and, in the case of reconstruction and re-
habilitation, such term includes a binding written 
contract for such reconstruction or rehabilitation. 
‘‘(4) MANUFACTURED HOME INCLUDED.—The 
term ‘dwelling’ includes a manufactured home con-
forming to Federal Manufactured Home Construc-
tion and Safety Standards (24 C.F.R. 3280). 
‘‘(d) COORDINATION WITH OTHER CREDITS.—Prop-
erty which would, but for this paragraph, be eligible for 
credit under more than one provision of this section shall 
be eligible only under one such provision, the provision 
specified by the taxpayer. 
‘‘(e) BASIS ADJUSTMENT.—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 sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(f) TERMINATION.—Subsection (a) shall apply to 
dwellings purchased during the period beginning on Janu-
ary 1, 2006, and ending on December 31, 2010.’’.
144
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) (relating to current year business 
credit) is amended by striking ‘‘plus’’ at the end of para-
graph (19), by striking the period at the end of paragraph 
(20) and inserting ‘‘, plus’’, and by adding at the end the 
following: 
‘‘(21) the new highly energy-efficient home 
credit determined under section 45J.’’. 
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C 
(relating to certain expenses for which credits are allow-
able) is amended by adding at the end the following: 
‘‘(e) NEW ENERGY-EFFICIENT HOME EXPENSES.—
No deduction shall be allowed for that portion of expenses 
for a new highly energy-efficient home otherwise allowable 
as a deduction for the taxable year which is equal to the 
amount of the credit determined for such taxable year 
under section 45J.’’. 
(d) CREDIT ALLOWED AGAINST REGULAR AND MIN-
IMUM TAX.—
(1) IN
GENERAL.—Section 38(c) (relating to 
limitation based on amount of tax) is amended by 
redesignating paragraph (5) as paragraph (6) and 
by inserting after paragraph (4) the following new 
paragraph:
145
‘‘(5) SPECIAL RULES FOR NEW ENERGY EFFI-
CIENT HOME CREDIT.—
‘‘(A) IN GENERAL.—In the case of the new 
energy efficient home credit—
‘‘(i) this section and section 39 shall 
be applied separately with respect to the 
credit, and 
‘‘(ii) in applying paragraph (1) to the 
credit—
‘‘(I) subparagraphs (A) and (B) 
thereof shall not apply, and 
‘‘(II) the limitation under para-
graph (1) (as modified by subclause 
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the 
taxable year (other than the new en-
ergy efficient home credit). 
‘‘(B) NEW
HIGHLY
ENERGY
EFFICIENT 
HOME
CREDIT.—For purposes of this sub-
section, the term ‘new highly energy efficient 
home credit’ means the credit allowable under 
subsection (a) by reason of section 45J.’’. 
(2) CONFORMING AMENDMENT.—Subclause (II) 
of section 38(c)(2)(A)(ii) is amended by inserting
146
‘‘or the new highly energy efficient home credit’’ 
after ‘‘employment credit’’. 
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS 
CREDITS.—Subsection (c) of section 196 is amended by 
striking ‘‘and’’ at the end of paragraph (11), by striking 
the period at the end of paragraph (12) and inserting ‘‘, 
and’’, and by adding after paragraph (12) the following: 
‘‘(13) the new highly energy-efficient home 
credit determined under section 45J.’’. 
(f) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by inserting after the item relating to section 
45I the following:
‘‘Sec. 45J. New highly energy-efficient home credit.’’.
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2005. 
SEC. 324. CREDIT FOR ENERGY EFFICIENT APPLIANCES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its) is amended by adding after section 45J the following: 
‘‘SEC. 45K. ENERGY EFFICIENT APPLIANCE CREDIT. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
the energy efficient appliance credit determined under this 
section for the taxable year is an amount equal to the ap-
plicable amount determined under subsection (b) with re-
147
spect to qualified energy efficient appliances produced by 
the taxpayer during the calendar year ending with or with-
in the taxable year. 
‘‘(b) APPLICABLE AMOUNT.—For purposes of sub-
section (a), the applicable amount determined under this 
subsection with respect to a taxpayer is the sum of—
‘‘(1) in the case of an energy efficient clothes 
washer described in subsection (d)(2)(A) or an en-
ergy efficient refrigerator described in subsection 
(d)(3)(B)(i), an amount equal to—
‘‘(A) $50, multiplied by 
‘‘(B) the number of such washers and re-
frigerators produced by the taxpayer during 
such calendar year, and 
‘‘(2) in the case of an energy efficient clothes 
washer described in subsection (d)(2)(B) or an en-
ergy efficient refrigerator described in subsection 
(d)(3)(B)(ii), an amount equal to—
‘‘(A) $100, multiplied by 
‘‘(B) the number of such washers and re-
frigerators produced by the taxpayer during 
such calendar year. 
‘‘(c) LIMITATION ON MAXIMUM CREDIT.—
148
‘‘(1) IN GENERAL.—The maximum amount of 
credit allowed under subsection (a) with respect to 
a taxpayer for all taxable years shall be—
‘‘(A) $30,000,000 with respect to the cred-
it determined under subsection (b)(1), and 
‘‘(B) $30,000,000 with respect to the cred-
it determined under subsection (b)(2). 
‘‘(2) 
LIMITATION
BASED
ON
GROSS
RE-
CEIPTS.—The credit allowed under subsection (a) 
with respect to a taxpayer for the taxable year shall 
not exceed an amount equal to 2 percent of the aver-
age annual gross receipts of the taxpayer for the 3 
taxable years preceding the taxable year in which 
the credit is determined. 
‘‘(3) GROSS RECEIPTS.—For purposes of this 
subsection, the rules of paragraphs (2) and (3) of 
section 448(c) shall apply. 
‘‘(d) QUALIFIED ENERGY EFFICIENT APPLIANCE.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified energy 
efficient appliance’ means—
‘‘(A) an energy efficient clothes washer, or 
‘‘(B) an energy efficient refrigerator. 
‘‘(2) ENERGY EFFICIENT CLOTHES WASHER.—
The term ‘energy efficient clothes washer’ means a
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residential clothes washer, including a residential 
style coin operated washer, which is manufactured 
with—
‘‘(A) a 8.5 Water Factor (referred to in 
this paragraph as ‘WF’) (as determined by the 
Secretary) and a 1.60 Modified Energy Factor 
(referred to in this paragraph as ‘MEF’) (as 
determined by the Secretary of Energy) for cal-
endar years 2006 through 2008, or 
‘‘(B) a 7.5 WF (as determined by the Sec-
retary) and a 1.80 MEF (as determined by the 
Secretary of Energy) for calendar years after 
2008. 
‘‘(3) ENERGY EFFICIENT REFRIGERATOR.—The 
term ‘energy efficient refrigerator’ means an auto-
matic defrost refrigerator-freezer which—
‘‘(A) has an internal volume of at least 
16.5 cubic feet, and 
‘‘(B) consumes—
‘‘(i) 15 percent less kw/hr/yr than the 
energy conservation standards promulgated 
by the Department of Energy for such re-
frigerator for 2005, or 
‘‘(ii) 20 to 25 percent less kw/hr/yr 
than such energy conservation standards.
150
‘‘(e) SPECIAL RULES.—
‘‘(1) IN GENERAL.—Rules similar to the rules 
of subsections (c), (d), and (e) of section 52 shall 
apply for purposes of this section. 
‘‘(2) AGGREGATION RULES.—All persons treat-
ed as a single employer under subsection (a) or (b) 
of section 52 or subsection (m) or (o) of section 414 
shall be treated as one person for purposes of sub-
section (a). 
‘‘(f) VERIFICATION.—The taxpayer shall submit such 
information or certification as the Secretary, in consulta-
tion with the Secretary of Energy, determines necessary 
to claim the credit amount under subsection (a). 
‘‘(g) TERMINATION.—This section shall not apply to 
qualified energy efficient appliances produced in calendar 
years beginning after 2010.’’. 
(b) CONFORMING AMENDMENT.—Section 38(b) (re-
lating to general business credit) is amended by striking 
‘‘plus’’ at the end of paragraph (20), by striking the period 
at the end of paragraph (21) and inserting ‘‘, plus’’, and 
by adding at the end the following new paragraph: 
‘‘(22) the energy efficient appliance credit de-
termined under section 45K(a).’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1
151
is amended by inserting after the item relating to section 
45J the following new item:
‘‘45K. Energy efficient appliance credit.’’.
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005. 
SEC. 325. CREDIT FOR DISTRIBUTED ENERGY GENERATION 
AND DEMAND MANAGEMENT PROPERTY. 
(a) IN GENERAL.—Subpart E of part IV of sub-
chapter A of chapter 1 (relating to rules for computing 
investment credit) is amended by inserting after section 
48 the following: 
‘‘SEC. 48A. ENERGY CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 46, the 
energy credit for any taxable year is the energy percentage 
of the basis of each energy property placed in service dur-
ing such taxable year. 
‘‘(b) ENERGY PERCENTAGE.—
‘‘(1) IN GENERAL.—The energy percentage is—
‘‘(A) except as otherwise provided in this 
subparagraph, 10 percent, 
‘‘(B) in the case of energy property de-
scribed in clauses (ii), (iv), and (v) of sub-
section (c)(1)(A), 20 percent, 
‘‘(C) in the case of energy property de-
scribed in subsection (c)(1)(A)(vii), 15 percent,
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‘‘(D) in the case of energy property de-
scribed in subsection (c)(1)(A)(iii) relating to a 
high risk geothermal well, 20 percent, and 
‘‘(E) in the case of energy property de-
scribed in subsection (c)(1)(A)(i), 50 percent. 
‘‘(2) COORDINATION WITH REHABILITATION.—
The energy percentage shall not apply to that por-
tion of the basis of any property which is attrib-
utable to qualified rehabilitation expenditures as de-
termined under section 47. 
‘‘(c) ENERGY PROPERTY DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this sub-
part, the term ‘energy property’ means any prop-
erty—
‘‘(A) which is—
‘‘(i) photovoltaic property, 
‘‘(ii) other solar energy property, 
‘‘(iii) geothermal energy property, 
‘‘(iv) energy-efficient building prop-
erty other than property described in 
clauses (iii)(I) and (v)(I) of subsection 
(d)(3)(A), 
‘‘(v) combined heat and power system 
property,
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‘‘(vi) 
qualified 
anaerobic 
digester 
property, 
‘‘(vii) waste conversion property, or 
‘‘(viii) adjustable speed drive property, 
‘‘(B)(i) the construction, reconstruction, or 
erection of which is completed by the taxpayer, 
or 
‘‘(ii) which is acquired by the taxpayer if 
the original use of such property commences 
with the taxpayer, 
‘‘(C) which can reasonably be expected to 
remain in operation for at least 5 years, 
‘‘(D) with respect to which depreciation (or 
amortization in lieu of depreciation) is allow-
able, and 
‘‘(E) which meets the performance and 
quality standards (if any) which—
‘‘(i) have been prescribed by the Sec-
retary by regulations (after consultation 
with the Secretary of Energy), and 
‘‘(ii) are in effect at the time of the 
acquisition of the property. 
‘‘(2) EXCEPTION FOR PUBLIC UTILITY PROP-
ERTY.—Such term shall not include any property 
which is public utility property (as defined in section
154
46(f)(5) as in effect on the day before the date of 
the enactment of the Revenue Reconciliation Act of 
1990), except for property described in paragraph 
(1)(A)(iv). 
‘‘(d) LIMITATION ON CREDIT FOR PHOTOVOLTAIC 
PROPERTY.—
‘‘(1) IN GENERAL.—The credit allowed under 
this section which is attributable to photovoltaic 
property shall not exceed the sum of—
‘‘(A) the applicable low-wattage rate multi-
plied by the number of watts of generating ca-
pacity of the property which does not exceed 10 
kilowatts, plus 
‘‘(B) the applicable high-wattage rate mul-
tiplied by the number of watts of generating ca-
pacity of the property in excess of 10 kilowatts 
(if any). 
‘‘(2) APPLICABLE
LOW- AND
HIGH-WATTAGE 
RATES.—For purposes of this subsection, the appli-
cable low- and high-wattage rates shall be deter-
mined under the following table:
‘‘In the case of taxable years begin-
ning in calendar year: 
The applicable low-watt-
age rate is: 
The applica-
ble high-
wattage rate 
is: 
2006 .........................................................
$3.00
$2.00
2007 .........................................................
$2.85
$1.90
2008 .........................................................
$2.70
$1.80
2009 .........................................................
$2.55
$1.70
2010 and thereafter .................................
$2.40
$1.60
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‘‘(3) GENERATING CAPACITY.—For purposes of 
this subsection, generating capacity shall be meas-
ured as the rated peak power output of a system’s 
component modules as established by the American 
Society for Testing and Materials. Any photovoltaic 
property which is electrically contiguous or serves 
the same customer load shall be treated as one sys-
tem for purposes of this section. 
‘‘(e) DEFINITIONS RELATING TO TYPES OF ENERGY 
PROPERTY.—For purposes of this section—
‘‘(1) SOLAR ENERGY PROPERTY.—
‘‘(A) 
PHOTOVOLTAIC
PROPERTY.—The 
term ‘photovoltaic property’ means equip-
ment—
‘‘(i) which uses solar energy to gen-
erate electricity, and 
‘‘(ii) which the taxpayer has elected 
(at such time and in such form and man-
ner as the Secretary may specify) to treat 
as photovoltaic property for purposes of 
this section. 
‘‘(B) OTHER SOLAR ENERGY PROPERTY.—
The term ‘other solar energy property’ means 
equipment—
156
‘‘(i) which uses solar energy to gen-
erate electricity, to heat or cool (or provide 
hot water for use in) a structure, or to 
provide solar process heat, and 
‘‘(ii) which is not photovoltaic prop-
erty. 
‘‘(C) SWIMMING
POOLS, ETC. USED
AS 
STORAGE
MEDIUM.—Photovoltaic and other 
solar energy property shall not include property 
with respect to which expenditures are properly 
allocable to a swimming pool, hot tub, or any 
other energy storage medium which has a func-
tion other than the function of such storage. 
‘‘(D) SOLAR PANELS.—No solar panel or 
other property installed as a roof (or portion 
thereof) shall fail to be treated as photovoltaic 
or other solar energy property solely because it 
constitutes a structural component of the struc-
ture on which it is installed. 
‘‘(2) GEOTHERMAL ENERGY PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘geothermal 
energy property’ means equipment used to 
produce, distribute, or use energy derived from 
a geothermal deposit (within the meaning of 
section 613(e)(2)), but only, in the case of elec-
157
tricity generated by geothermal power, up to 
(but not including) the electrical transmission 
stage. 
‘‘(B) HIGH
RISK
GEOTHERMAL
WELL.—
The term ‘high risk geothermal well’ means a 
geothermal deposit (within the meaning of sec-
tion 613(e)(2)) which requires high risk drilling 
techniques. Such deposit may not be located in 
a State or national park or in an area in which 
the relevant State park authority or the Na-
tional Park Service determines the development 
of such a deposit will negatively impact on a 
State or national park. 
‘‘(3) 
ENERGY-EFFICIENT
BUILDING
PROP-
ERTY.—
‘‘(A) IN GENERAL.—The term ‘energy-effi-
cient building property’ means—
‘‘(i) a fuel cell which—
‘‘(I) generates electricity using 
an electrochemical process, 
‘‘(II) has an electricity-only gen-
eration efficiency greater than 30 per-
cent, and 
‘‘(III) has a minimum generating 
capacity of 1 kilowatt,
158
‘‘(ii) an electric heat pump hot water 
heater which yields an energy factor of 2.0 
or greater under test procedures prescribed 
by the Secretary of Energy, 
‘‘(iii)(I) an electric heat pump which 
has a heating system performance factor 
(HSPF) of at least 8.5 but less than 9 and 
a cooling seasonal energy efficiency ratio 
(SEER) of at least 14 but less than 15 
and an energy efficiency ratio (EER) of at 
least 12, 
‘‘(II) an electric heat pump which has 
a heating system performance factor 
(HSPF) of 9 or greater and a cooling sea-
sonal energy efficiency ratio (SEER) of 15 
or greater and an energy efficiency ratio 
(EER) of at least 13, 
‘‘(iv) a natural gas heat pump which 
has a coefficient of performance of not less 
than 1.25 for heating and not less than 
0.80 for cooling, 
‘‘(v)(I) a central air conditioner which 
has a cooling seasonal energy efficiency 
ratio (SEER) of at least 14 but less than
159
15 and an energy efficiency ratio (EER) of 
at least 12, 
‘‘(II) a central air conditioner which 
has a cooling seasonal energy efficiency 
ratio (SEER) of 15 or greater and an en-
ergy efficiency ratio (EER) of at least 13, 
‘‘(vi) an advanced natural gas water 
heater which—
‘‘(I) increases steady state effi-
ciency and reduces standby and vent 
losses, and 
‘‘(II) has an energy factor of at 
least 0.80, and 
‘‘(vii) an advanced natural gas fur-
nace which achieves a 95 percent AFUE 
and rated for seasonal electricity use of 
less than 300 kWh per year. 
‘‘(B) LIMITATIONS.—The credit under sub-
section (a) for the taxable year may not ex-
ceed—
‘‘(i) $500 in the case of property de-
scribed in subparagraph (A) other than 
clauses (i) and (iv) thereof,