‘‘(C) in the case of energy property de-
scribed in subsection (c)(1)(A)(v), 15 percent,
and
‘‘(D) in the case of energy property de-
scribed in subsection (c)(1)(A)(ii) relating to a
high risk geothermal well, 20 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.
‘‘(c) ENERGY PROPERTY DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this sub-
part, the term ‘energy property’ means any
property—
‘‘(A) which is—
‘‘(i) solar energy property,
‘‘(ii) geothermal energy property,
‘‘(iii) energy-efficient building prop-
erty other than property described in
clauses (iii)(I) and (v)(I) of subsection
(d)(3)(A),
‘‘(iv) combined heat and power system
property,
‘‘(v) low core loss distribution trans-
former property, or
‘‘(vi) 
qualified 
anaerobic 
digester
property, or
‘‘(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
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) DEFINITIONS RELATING TO TYPES OF ENERGY
PROPERTY.—For purposes of this section—
‘‘(1) SOLAR ENERGY PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘solar en-
ergy property’ means equipment which uses
solar energy to generate electricity, to heat or
cool (or provide hot water for use in) a struc-
ture, or to provide solar process heat.
‘‘(B) SWIMMING
POOLS, ETC. USED
AS
STORAGE
MEDIUM.—The term ‘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 function other
than the function of such storage.
‘‘(C) SOLAR PANELS.—No solar panel or
other property installed as a roof (or portion
thereof) shall fail to be treated as solar energy
property solely because it constitutes a struc-
tural component of the structure 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-
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,
‘‘(ii) an electric heat pump hot water
heater which yields an energy factor of 1.7
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 13.5 but less than 15
and an energy efficiency ratio (EER) of at
least 11.5,
‘‘(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 12.5,
‘‘(iv) a natural gas heat pump which
has a coefficient of performance of not less
than 1.25 for heating and not less than
0.70 for cooling,
‘‘(v)(I) a central air conditioner which
has a cooling seasonal energy efficiency
ratio (SEER) of at least 13.5 but less than
15 and an energy efficiency ratio (EER) of
at least 11.5,
‘‘(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
12.5,
‘‘(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 0.65, and
‘‘(vii) an advanced natural gas fur-
nace which achieves a 90 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
exceed—
‘‘(i) $500 in the case of property de-
scribed in subparagraph (A) other than
clauses (i) and (iv) thereof,
‘‘(ii) $500 for each kilowatt of capac-
ity in the case of any fuel cell described in
subparagraph (A)(i), and
‘‘(iii) $3,000 in the case of any nat-
ural gas heat pump described in subpara-
graph (A)(iv).
‘‘(4) COMBINED
HEAT
AND
POWER
SYSTEM
PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘combined
heat and power system property’ means
property—
‘‘(i) comprising a system for the same
energy source for the simultaneous or se-
quential generation of electrical power, me-
chanical shaft power, or both, in combina-
tion with steam, heat, or other forms of
useful energy,
‘‘(ii) which has an electrical capacity
of more than 20 kilowatts or a mechanical
energy capacity of more than 67 horse-
power or an equivalent combination of elec-
trical 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 a com-
bination thereof), and
‘‘(iv) the energy efficiency percentage
of which exceeds—
‘‘(I) 60 percent in the case of a
system with an electrical capacity of
less than 1 megawatt),
‘‘(II) 65 percent in the case of a
system with an electrical capacity of
not less than 1 megawatt and not in
excess of 50 megawatts), and
‘‘(III) 70 percent in the case of a
system with an electrical capacity in
excess of 50 megawatts).
‘‘(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 mechanical power produced by
the system at normal operating rates,
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
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 en-
ergy source to the facility or to distribute
energy produced by the facility.
‘‘(iv) ACCOUNTING RULE FOR PUBLIC
UTILITY PROPERTY.—If the combined heat
and power system property is public utility
property (as defined in section 46(f)(5) as
in effect on the day before the date of the
enactment of the Revenue Reconciliation
Act of 1990), the taxpayer may only claim
the credit under subsection (a)(1) if, with
respect to such property, the taxpayer uses
a normalization method of accounting.
‘‘(5) LOW
CORE
LOSS
DISTRIBUTION
TRANS-
FORMER PROPERTY.—The term ‘low core loss dis-
tribution transformer property’ means a distribution
transformer that has an efficiency rating based on
the National Electrical Manufacturers Association
(NEMA) 
TP–2 
test 
procedure 
equal 
to 
or
exceeding—
‘‘(A) the NEMA TP–1 efficiency standard
for the type of transformer concerned, plus
‘‘(B) 0.5 percent of the NEMA TP–1 effi-
ciency standard.
‘‘(6) QUALIFIED ANAEROBIC DIGESTER PROP-
ERTY.—The term ‘qualified anaerobic digester prop-
erty’ means an anaerobic digester for manure or
crop waste which achieves at least 65 percent effi-
ciency measured in terms of the fraction of energy
input converted to electricity and useful thermal en-
ergy.
100
‘‘(e) 
SPECIAL
RULES.—For 
purposes 
of 
this
section—
‘‘(1) SPECIAL RULE FOR PROPERTY FINANCED
BY SUBSIDIZED ENERGY FINANCING OR INDUSTRIAL
DEVELOPMENT BONDS.—
‘‘(A) REDUCTION OF BASIS.—For purposes
of applying the energy percentage to any prop-
erty, if such property is financed in whole or in
part by—
‘‘(i) subsidized energy financing, or
‘‘(ii) the proceeds of a private activity
bond (within the meaning of section 141)
the interest on which is exempt from tax
under section 103, the amount taken into
account as the basis of such property shall
not exceed the amount which (but for this
subparagraph) would be so taken into ac-
count multiplied by the fraction deter-
mined under subparagraph (B).
‘‘(B) DETERMINATION OF FRACTION.—For
purposes of subparagraph (A), the fraction de-
termined under this subparagraph is 1 reduced
by a fraction—
‘‘(i) the numerator of which is that
portion of the basis of the property which
102
the portion of the amortizable basis of any qualified timber
property which was acquired during such taxable year and
which is taken into account under section 194 (after the
application of section 194(b)(1)).
‘‘(b) DEFINITIONS.—For purposes of this subpart,
the terms ‘amortizable basis’ and ‘qualified timber prop-
erty’ have the respective meanings given to such terms by
section 194.’’.
(2) Section 39(d), as amended by section 303,
is amended by adding at the end the following:
‘‘(14) 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 determined under section
48A may be carried back to a taxable year ending
before January 1, 2002.’’.
(3) Section 280C, as amended by section 302,
is amended by adding at the end the following:
‘‘(e) CREDIT FOR ENERGY PROPERTY EXPENSES.—
‘‘(1) IN GENERAL.—No deduction shall be al-
lowed for that portion of the expenses for energy
property (as defined in section 48A(c)) otherwise al-
lowable as a deduction for the taxable year which is
equal to the amount of the credit determined for
such taxable year under section 48A(a).
103
‘‘(2) SIMILAR
RULE
WHERE
TAXPAYER
CAP-
ITALIZES RATHER THAN DEDUCTS EXPENSES.—If—
‘‘(A) the amount of the credit allowable for
the taxable year under section 48A (determined
without regard to section 38(c)), exceeds
‘‘(B) the amount allowable as a deduction
for the taxable year for expenses for energy
property (determined without regard to para-
graph (1)), the amount chargeable to capital
account for the taxable year for such expenses
shall be reduced by the amount of such excess.
‘‘(3) CONTROLLED GROUPS.—Paragraph (3) of
subsection (b) shall apply for purposes of this sub-
section.’’.
(4) Section 29(b)(3)(A)(i)(III) is amended by
striking ‘section 48(a)(4)(C)’ and inserting ‘section
48A(e)(1)(C)’.
(5) Section 50(a)(2)(E) is amended by striking
‘section 48(a)(5)’ and inserting ‘section 48A(e)(2)’.
(6) Section 168(e)(3)(B) is amended—
(A) by striking clause (vi)(I) and inserting
the following:
‘‘(I) is described in paragraph (1) or
(2) of section 48A(d) (or would be so de-
104
scribed if ‘solar and wind’ were substituted
for ‘solar’ in paragraph (1)(B)),’’, and
(B) in the last sentence by striking ‘‘sec-
tion 
48(a)(3)’’ 
and 
inserting 
‘‘section
48A(c)(2)(A)’’.
(c) CLERICAL AMENDMENT.—The table of sections
for subpart E of part IV of subchapter A of chapter 1
is amended by striking the item relating to section 48 and
inserting the following:
‘‘Sec. 48. Reforestation credit.
‘‘Sec. 48A. Energy credit.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
December 31, 2001, under rules similar to the rules of
section 48(m) of the Internal Revenue Code of 1986 (as
in effect on the day before the date of the enactment of
the Revenue Reconciliation Act of 1990).
SEC. 402. CREDIT FOR DISTRIBUTED ENERGY GENERATION
AND 
DEMAND 
MANAGEMENT 
PROPERTY
USED IN RESIDENCES.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 25B the fol-
lowing:
105
‘‘SEC. 25C. RESIDENTIAL DISTRIBUTED ENERGY GENERA-
TION AND DEMAND MANAGEMENT PROP-
ERTY.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an amount
equal to the sum of—
‘‘(1) 15 percent of the qualified photovoltaic
property expenditures,
‘‘(2) 15 percent of the qualified solar water
heating property expenditures,
‘‘(3) 25 percent of the qualified wind energy
property expenditures, and
‘‘(4) 20 percent for the qualified fuel cell prop-
erty expenditures,
‘‘(5) 20 percent for qualified energy-efficient
building property expenditures (10 percent for ex-
penditures described in subsection (c)(5)(B)),
made by the taxpayer during the taxable year.
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) SOLAR.—The credit allowed under
subsection (a)(2) shall not exceed $2,000 for
each system of solar energy property.
106
‘‘(B) WIND.—The credit allowed under
subsection (a)(3) shall not exceed $5,000 for
each system of wind energy property.
‘‘(C) ENERGY-EFFICIENT BUILDING PROP-
ERTY.—The credit allowed under subsection
(a)(5) shall not exceed $500 for each item of
energy-efficient building property.
‘‘(2) TYPE OF PROPERTY.—No expenditure may
be taken into account under this section unless such
expenditure is made by the taxpayer for property in-
stalled on or in connection with a dwelling unit
which is located in the United States and which is
used as a residence.
‘‘(3) 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 enti-
ty endorsed by the government of the State in
which such property is installed, and
‘‘(B) in the case of a photovoltaic, wind en-
ergy, or fuel cell property, such property meets
appropriate fire and electric code requirements.
107
‘‘(c) DEFINITIONS AND SPECIAL RULES RELATING
TO EXPENDITURES.—For purposes of this section—
‘‘(1) QUALIFIED PHOTOVOLTAIC PROPERTY EX-
PENDITURE.—The term ‘qualified photovoltaic prop-
erty expenditure’ means an expenditure for property
which uses solar energy to generate electricity for
use in a dwelling unit.
‘‘(2) QUALIFIED SOLAR WATER HEATING PROP-
ERTY
EXPENDITURE.—The term ‘qualified solar
water heating property expenditure’ means an ex-
penditure for property which uses solar energy to
heat water for use in a dwelling unit with respect to
which a majority of the energy is derived from the
sun.
‘‘(3) 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 a dwelling unit.
‘‘(4) QUALIFIED
FUEL
CELL
PROPERTY
EX-
PENDITURE.—The term ‘qualified fuel cell property
expenditure’ means an expenditure for property
which uses an electrochemical fuel cell system to
generate electricity for use in a dwelling unit.
108
‘‘(5) QUALIFIED ENERGY-EFFICIENT BUILDING
PROPERTY EXPENDITURE.—
‘‘(A) IN
GENERAL.—The term ‘qualified
energy-efficient building property expenditure’
means an expenditure for energy efficient build-
ing property defined in clauses (ii), (iii), (iv),
(v), (vi), and (vii) of section 48A(d)(3)(A).
‘‘(B) 10
PERCENT
CREDIT
FOR
CERTAIN
PROPERTY.—For purposes of subsection (a)(5),
the expenditures described in this subparagraph
are expenditures for energy efficient building
property defined in clauses (iii)(II) and (iv)(II)
of section 48A(d)(3)(A).
‘‘(6) 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 prop-
erty described in paragraph (1) or (2) solely because
it constitutes a structural component of the struc-
ture on which it is installed.
‘‘(7) LABOR
COSTS.—Expenditures for labor
costs properly allocable to the onsite preparation, as-
sembly, or original installation of the property de-
scribed in paragraph (1), (2), (3), (4), or (5) and for
piping or wiring to interconnect such property to the
109
dwelling unit shall be taken into account for pur-
poses of this section.
‘‘(8) ENERGY
STORAGE
MEDIUM.—Expendi-
tures 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 account for purposes
of this section.
‘‘(d) SPECIAL
RULES.—For purposes of this
section—
‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OC-
CUPANCY.—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 cal-
endar year by any of such individuals with re-
spect to such dwelling unit shall be determined
by treating 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 individ-
uals, a credit under subsection (a) for the tax-
110
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.
‘‘(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 such individual owns, such indi-
vidual shall be treated as having made his pro-
portionate share of any expenditures of such as-
sociation.
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the
111
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 ITEMS OF SOLAR OR
WIND ENERGY PROPERTY.—
‘‘(A) IN GENERAL.—Any expenditure oth-
erwise qualifying as an expenditure described in
paragraph (1), (2), or (3) of subsection (c) shall
not be treated as failing to so qualify merely be-
cause 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 residential purposes, only that portion of the
expenditures for such item which is properly allo-
112
cable to use for nonbusiness residential purposes
shall be taken into account. For purposes of this
paragraph, use for a swimming pool shall be treated
as use which is not for residential purposes.
‘‘(6) 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 treated as made when the original use of the
constructed or reconstructed structure by the
taxpayer begins.
‘‘(C) AMOUNT.—The amount of any ex-
penditure shall be the cost thereof.
‘‘(7) REDUCTION OF CREDIT FOR GRANTS, TAX-
EXEMPT BONDS, AND SUBSIDIZED ENERGY FINANC-
ING.—The rules of section 29(b)(3) shall apply for
purposes of this section.
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this
subtitle, if a credit is allowed under this section for any
113
expenditure 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.—The credit allowed under this
section shall not apply to taxable years beginning after
December 31, 2006.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a), as amended by section
301(b), 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 add-
ing at the end the following:
‘‘(32) to the extent provided in section 25C(e),
in the case of amounts with respect to which a credit
has been allowed under section 25C.’’.
(2) The table of sections for subpart A of part
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25B the fol-
lowing:
‘‘Sec. 25C. Residential solar, wind, and fuel cell energy prop-
erty.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to expenditures made after the
date of the enactment of this Act, in taxable years ending
after such date.
116
section (a) shall be reduced by the amount of such
credit.
‘‘(2) RECAPTURE.—The Secretary shall, by reg-
ulations, provide for recapturing the benefit of any
credit allowable under subsection (a) with respect to
any property that ceases to be property eligible for
such credit.
‘‘(3) PROPERTY USED OUTSIDE THE UNITED
STATES, ETC., NOT QUALIFIED.—No credit shall be
allowed under subsection (a) with respect to any
property referred to in section 50(b)(1) or with re-
spect to the portion of the cost of any property
taken into account under section 179.
‘‘(4) ELECTION
TO
NOT
TAKE
CREDIT.—No
credit shall be allowed under subsection (a) for any
energy management device if the taxpayer elects to
not have this section apply to such device.
‘‘(5) CREDITS FOR CERTAIN TAX EXEMPT OR-
GANIZATIONS AND GOVERNMENTAL UNITS.—
‘‘(A) ALLOWANCE OF CREDIT.—Any credit
which would be allowable under subsection (a)
with respect to a qualified energy management
device or a qualified retrofitted meter placed in
service by an entity if such entity were not ex-
empt from tax under this chapter shall be treat-
117
ed as a credit allowable under subpart B to
such entity if such entity is—
‘‘(i) an organization described in sec-
tion 501(c)(12)(C) and exempt from tax
under section 501(a),
‘‘(ii) an organization described in sec-
tion 1381(a)(2)(C),
‘‘(iii) an entity the income of which is
excludable from gross income under section
115, or
‘‘(iv) a State, the District of Colum-
bia, any territory or possession of the
United States, or any political subdivision
thereof.
‘‘(B) USE OF CREDIT.—
‘‘(i) TRANSFER OF CREDIT.—An enti-
ty described in subparagraph (A) may as-
sign, trade, sell, or otherwise transfer any
credit allowable to such entity under sub-
paragraph (A) to any taxpayer.
‘‘(ii) USE
OF
CREDIT
AS
AN
OFF-
SET.—Notwithstanding any other provision
of law, in the case of an entity described
in clause (i) or (ii) of subparagraph (A),
any credit allowable to such entity under
118
subparagraph (A) may be applied by such
entity, without penalty, as a prepayment of
any loan, debt, or other obligation the enti-
ty has incurred under subchapter I of
chapter 31 of title 7 of the Rural Elec-
trification Act of 1936 (7 U.S.C. 901 et
seq.).
‘‘(C) CREDIT
NOT
INCOME.—Neither a
transfer under clause (i) nor a use under clause
(ii) of subparagraph (B) of any credit allowable
under subparagraph (A) shall result in income
for purposes of section 501(c)(12).
‘‘(D) TRANSFER PROCEEDS TREATED AS
ARISING FROM ESSENTIAL GOVERNMENT FUNC-
TION.—Any proceeds derived by an entity de-
scribed in subparagraph (A)(iii) from the trans-
fer of any credit under subparagraph (B)(i)
shall be treated as arising from an essential
government function.
‘‘(d) TERMINATION.—This section shall not apply to
any property placed in service after December 31, 2007.’’.
(2) INCLUSION
OF
INDIAN
TRIBAL
GOVERN-
MENTS.—Section 7871(a)(7), as amended by section
103, is amended by striking ‘‘and’’ at the end of
subparagraph (B), by striking the period at the end
119
of subparagraph (C), and by adding at the end the
following:
‘‘(D) section 30D (relating to credit for en-
ergy management systems).’’.
(3) CONFORMING AMENDMENTS.—
(A) The table of contents for subpart B of
part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section
30C the following new item:
‘‘Sec. 30D. Credit for energy management systems.’’.
(B) Section 1016(a), as amended by sec-
tion 402, 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
30D(c)(1).’’.
(4) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to qualified energy
management devices placed in service after the date
of the enactment of this Act and to qualified retro-
fitted meters that are placed in service on or after,
or that are in use as of, January 1, 2002.
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(b) 5-YEAR APPLICABLE RECOVERY PERIOD
FOR
DEPRECIATION
OF QUALIFIED ENERGY MANAGEMENT
DEVICES.—
(1) IN GENERAL.—Subparagraph (B) of section
168(e)(3) of the Internal Revenue Code of 1986 (re-
lating to classification of property) is amended by
striking ‘‘and’’ at the end of clause (v), by striking
the period at the end of clause (vi) and inserting ‘‘,
and’’, and by adding at the end the following new
clause:
‘‘(vii) any qualified energy manage-
ment device.’’.
(2) DEFINITION OF QUALIFIED ENERGY MAN-
AGEMENT DEVICE.—Section 168(i) of such Code (re-
lating to definitions and special 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 a meter or metering device that is ac-
quired and used by an electric energy or natural gas
supplier or service provider to enable consumers and
others to manage their purchase, sale, and use of
electricity or natural gas in response to energy price
and usage signals that are readable on at least a
daily basis. For purposes of the preceding sentence,
121
the cost of any qualified energy management device
shall (at the election of the taxpayer) include the
cost of the original installation of such property.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to property placed in
service after December 31, 2000, and before Janu-
ary 1, 2007.
SEC. 404. CREDIT FOR FLYWHEEL PROPERTY.
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 (relating to foreign tax credits,
etc.), as amended by section 403, is amended by inserting
after section 30D the following new section:
‘‘SEC. 30E. CREDIT FOR FLYWHEEL PROPERTY.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to 10 percent of the
cost of any qualified flywheel property placed in service
by the taxpayer during the taxable year.
‘‘(b) LIMITATION.—The credit allowed under sub-
section (a) shall not exceed $2,000 for a taxable year.
‘‘(c) QUALIFIED FLYWHEEL PROPERTY.—For pur-
poses of this section, the term ‘qualified flywheel property’
means a flywheel designed exclusively to store energy that
is used to generate electricity.
‘‘(d) SPECIAL RULES.—
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‘‘(1) BASIS
REDUCTION.—The basis of any
property for which a credit is allowable under sub-
section (a) shall be reduced by the amount of such
credit.
‘‘(2) RECAPTURE.—The Secretary shall, by reg-
ulations, provide for recapturing the benefit of any
credit allowable under subsection (a) with respect to
any property that ceases to be property eligible for
such credit.
‘‘(3) PROPERTY USED OUTSIDE THE UNITED
STATES, ETC., NOT QUALIFIED.—No credit shall be
allowed under subsection (a) with respect to any
property referred to in section 50(b)(1) or with re-
spect to the portion of the cost of any property
taken into account under section 179.
‘‘(4) ELECTION
TO
NOT
TAKE
CREDIT.—No
credit shall be allowed under subsection (a) for any
qualified flywheel property if the taxpayer elects to
not have this section apply to such property.
‘‘(d) TERMINATION.—This section shall not apply to
any property placed in service after December 31, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) The table of contents for subpart B of part
IV of subchapter A of chapter 1, as amended by sec-
123
tion 403, is amended by inserting after the item re-
lating to section 30D the following new item:
‘‘Sec. 30E. Credit for qualified flywheel property.’’.
(2) Section 1016(a), as amended by section
403, is amended by striking ‘‘and’’ at the end of
paragraph (32), by striking the period at the end of
paragraph (33) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph:
‘‘(34) to the extent provided in section
30E(c)(1).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
December 31, 2001, in taxable years ending after such
date.
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