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‘‘(B) by not taking into account—
‘‘(i) any gain or loss from the sale or
exchange of capital assets (determined with-
out regard to any reduction that would be
applied 
for 
purposes 
of 
section
857(b)(3)(G)(i)), and
‘‘(ii) any deduction allowable under
section 1203, and’’.
(2) 
CAPITAL
GAIN
NET
INCOME.—Section
4981(e)(2) is amended by adding at the end the fol-
lowing new subparagraph:
‘‘(D) 
QUALIFIED
TIMBER
GAIN.—The
amount determined under subparagraph (A)
shall be determined without regard to any reduc-
tion that would be applied for purposes of sec-
tion 857(b)(3)(G)(i) but shall be reduced for any
deduction allowable under section 1203 for such
calendar year.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 12214. TIMBER REIT MODERNIZATION.
(a) IN GENERAL.—Section 856(c)(5) is amended by
adding after subparagraph (G) the following new subpara-
graph:
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‘‘(H) TREATMENT OF TIMBER GAINS.—
‘‘(i) IN GENERAL.—Gain from the sale
of real property described in paragraph
(2)(D) and (3)(C) shall include gain which
is—
‘‘(I) recognized by an election
under section 631(a) from timber
owned by the real estate investment
trust, the cutting of which is provided
by a taxable REIT subsidiary of the
real estate investment trust;
‘‘(II) recognized under section
631(b); or
‘‘(III) income which would con-
stitute gain under subclause (I) or (II)
but for the failure to meet the 1-year
holding period requirement.
‘‘(ii) SPECIAL RULES.—
‘‘(I) For purposes of this subtitle,
cut timber, the gain of which is recog-
nized by a real estate investment trust
pursuant to an election under section
631(a) described in clause (i)(I) or so
much of clause (i)(III) as relates to
clause (i)(I), shall be deemed to be sold
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to the taxable REIT subsidiary of the
real estate investment trust on the first
day of the taxable year.
‘‘(II) For purposes of this subtitle,
income described in this subparagraph
shall not be treated as gain from the
sale of property described in section
1221(a)(1).
‘‘(iii) TERMINATION.—This subpara-
graph shall not apply to dispositions after
the termination date.’’.
(b) TERMINATION DATE.—Subsection (c) of section
856 is amended by adding at the end the following new
paragraph:
‘‘(8) TERMINATION DATE.—For purposes of this
subsection, the term ‘termination date’ means the last
day of the first taxable year beginning after the date
of the enactment of this paragraph.’’.
(c) EFFECTIVE DATE.—The amendments made by sub-
section (a) shall apply to dispositions in taxable years be-
ginning after the date of the enactment of this Act.
SEC. 12215. MINERAL ROYALTY INCOME QUALIFYING IN-
COME FOR TIMBER REITS.
(a) IN GENERAL.—Section 856(c)(2) is amended by
striking ‘‘and’’ at the end of subparagraph (G), by inserting
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‘‘and’’ at the end of subparagraph (H), and by adding after
subparagraph (H) the following new subparagraph:
‘‘(I) mineral royalty income earned in the
first taxable year beginning after the date of the
enactment of this subparagraph from real prop-
erty owned by a timber real estate investment
trust held, or once held, in connection with the
trade or business of producing timber by such
real estate investment trust;’’.
(b) TIMBER REAL ESTATE INVESTMENT TRUST.—Sec-
tion 856(c)(5), as amended by this Act, is amended by add-
ing after subparagraph (H) the following new subpara-
graph:
‘‘(I) TIMBER
REAL
ESTATE
INVESTMENT
TRUST.—The term ‘timber real estate investment
trust’ means a real estate investment trust in
which more than 50 percent in value of its total
assets consists of real property held in connection
with the trade or business of producing timber.’’.
(c) EFFECTIVE DATE.—The amendments by this sec-
tion shall apply to taxable years beginning after the date
of the enactment of this Act.
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SEC. 12216. MODIFICATION OF TAXABLE REIT SUBSIDIARY
ASSET TEST FOR TIMBER REITS.
(a) IN GENERAL.—Section 856(c)(4)(B)(ii) is amend-
ed by inserting ‘‘(in the case of a quarter which closes on
or before the termination date, 25 percent in the case of
a timber real estate investment trust)’’ after ‘‘not more than
20 percent of the value of its total assets is represented by
securities of one or more taxable REIT subsidiaries’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 12217. SAFE HARBOR FOR TIMBER PROPERTY.
(a) IN GENERAL.—Section 857(b)(6) (relating to in-
come from prohibited transactions) is amended by adding
at the end the following new subparagraph:
‘‘(G) SPECIAL RULES FOR SALES TO QUALI-
FIED ORGANIZATIONS.—
‘‘(i) IN GENERAL.—In the case of sale
of a real estate asset (as defined in section
856(c)(5)(B)) to a qualified organization
(as defined in section 170(h)(3)) exclusively
for conservation purposes (within the mean-
ing of section 170(h)(1)(C)), subparagraph
(D) shall be applied—
‘‘(I) by substituting ‘2 years’ for
‘4 years’ in clause (i), and
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‘‘(II) by substituting ‘2-year pe-
riod’ for ‘4-year period’ in clauses (ii)
and (iii).
‘‘(ii) TERMINATION.—This subpara-
graph shall not apply to sales after the ter-
mination date.’’.
(b) 
PROHIBITED
TRANSACTIONS.—Section
857(b)(6)(D)(v) is amended by inserting ‘‘or, in the case
of a sale on or before the termination date, a taxable REIT
subsidiary’’ after ‘‘independent contractor (as defined in
section 856(d)(3)) from whom the trust itself does not derive
or receive any income’’.
(c) SALES THAT ARE NOT PROHIBITED TRANS-
ACTIONS.—Section 857(b)(6), as amended by subsection (a),
is amended by adding at the end the following new subpara-
graph:
‘‘(H) SALES OF PROPERTY THAT ARE NOT A
PROHIBITED TRANSACTION.—In the case of a sale
on or before the termination date, the sale of
property which is not a prohibited transaction
through application of subparagraph (D) shall
be considered property held for investment or for
use in a trade or business and not property de-
scribed in section 1221(a)(1) for all purposes of
this subtitle.’’.
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(d) TERMINATION
DATE.—Section 857(b)(6), as
amended by subsections (a) and (c), is amended by adding
at the end the following new subparagraph:
‘‘(I) TERMINATION DATE.—For purposes of
this paragraph, the term ‘termination date’
means the last day of the first taxable year be-
ginning after the date of the enactment of this
subparagraph.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to dispositions in taxable years begin-
ning after the date of the enactment of this Act.
Subtitle C—Energy Provisions
PART I—ELECTRICITY GENERATION
SEC. 12301. CREDIT FOR RESIDENTIAL AND BUSINESS WIND
PROPERTY.
(a) RESIDENTIAL WIND PROPERTY.—
(1) IN GENERAL.—Section 25D(a) (relating to
allowance of credit) is amended by striking ‘‘and’’ at
the end of paragraph (2), by striking the period at the
end of paragraph (3) and inserting ‘‘, and’’, and by
adding at the end the following new paragraph:
‘‘(4) 30 percent of the qualified small wind en-
ergy property expenditures made by the taxpayer
during such year.’’.
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(2) LIMITATION.—Section 25D(b)(1) (relating to
maximum credit) is amended by striking ‘‘and’’ at
the end of subparagraph (B), by striking the period
at the end of subparagraph (C) and inserting ‘‘,
and’’, and by adding at the end the following new
subparagraph:
‘‘(D) $500 with respect to each half kilowatt
of capacity (not to exceed $4,000) of wind tur-
bines for which qualified small wind energy
property expenditures are made.’’.
(3) QUALIFIED SMALL WIND ENERGY PROPERTY
EXPENDITURES.—
(A) IN GENERAL.—Section 25D(d) (relating
to definitions) is amended by adding at the end
the following new paragraph:
‘‘(4) QUALIFIED SMALL WIND ENERGY PROPERTY
EXPENDITURE.—The term ‘qualified small wind en-
ergy property expenditure’ means an expenditure for
qualified small wind energy property (as defined in
section 48(c)(3)(A)) installed on or in connection with
a dwelling unit located in the United States and used
as a residence by the taxpayer.’’.
(B) 
NO
DOUBLE
BENEFIT.—Section
45(d)(1) (relating to wind facility) is amended
by adding at the end the following new sentence:
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‘‘Such term shall not include any facility with
respect to which any qualified small wind energy
property expenditure (as defined in subsection
(d)(4) of section 25D) is taken into account in
determining the credit under such section.’’.
(4) MAXIMUM EXPENDITURES IN CASE OF JOINT
OCCUPANCY.—Section 25D(e)(4)(A) (relating to max-
imum expenditures) 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 add-
ing at the end the following new clause:
‘‘(iv) $1,667 in the case of each half
kilowatt of capacity (not to exceed $13,333)
of wind turbines for which qualified small
wind energy property expenditures are
made.’’.
(b) BUSINESS WIND PROPERTY.—
(1) IN GENERAL.—Section 48(a)(3)(A) (defining
energy property) is amended by striking ‘‘or’’ at the
end of clause (iii), by adding ‘‘or’’ at the end of
clause (iv), and by inserting after clause (iv) the fol-
lowing new clause:
‘‘(v) qualified small wind energy prop-
erty,’’.
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(2) 30 PERCENT CREDIT.—Section 48(a)(2)(A)(i)
is amended by striking ‘‘and’’ at the end of subclause
(II) and by inserting after subclause (III) the fol-
lowing new subclause:
‘‘(IV) qualified small wind energy
property, and’’.
(3) QUALIFIED
SMALL
WIND
ENERGY
PROP-
ERTY.—Section 48(c) is amended—
(A) by inserting ‘‘; QUALIFIED
SMALL
WIND ENERGY PROPERTY’’ after ‘‘QUALIFIED
MICROTURBINE PROPERTY’’ in the heading,
(B) by striking ‘‘For purposes of this sub-
section’’ and inserting ‘‘For purposes of this sec-
tion’’,
(C) by striking ‘‘paragraph (1)’’ in para-
graphs (1)(B) and (2)(B) and inserting ‘‘sub-
section (a)(1)’’, and
(D) by adding at the end the following new
paragraph:
‘‘(3) QUALIFIED
SMALL
WIND
ENERGY
PROP-
ERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
small wind energy property’ means property
which uses a qualifying small wind turbine to
generate electricity.
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‘‘(B) LIMITATION.—In the case of qualified
small wind energy property placed in service
during the taxable year, the credit otherwise de-
termined under subsection (a)(1) for such year
with respect to such property shall not exceed
$4,000 with respect to any taxpayer.
‘‘(C) QUALIFYING SMALL WIND TURBINE.—
The term ‘qualifying small wind turbine’ means
a wind turbine which—
‘‘(i) has a nameplate capacity of not
more than 100 kilowatts, and
‘‘(ii) meets the performance standards
of the American Wind Energy Association.
‘‘(D) TERMINATION.—The term ‘qualified
small wind energy property’ shall not include
any property for any period after December 31,
2008.’’.
(4) CONFORMING AMENDMENT.—Section 48(a)(1)
is amended by striking ‘‘paragraphs (1)(B) and
(2)(B)’’ and inserting ‘‘paragraphs (1)(B), (2)(B),
and (3)(B)’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenditures after December 31, 2007.
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SEC. 12302. LANDOWNER INCENTIVE TO ENCOURAGE ELEC-
TRIC TRANSMISSION BUILD-OUT.
(a) IN GENERAL.—Part III of subchapter B of chapter
1 (relating to items specifically excluded from gross income)
is amended by inserting after section 139A the following
new section:
‘‘SEC. 139B. ELECTRIC TRANSMISSION EASEMENT PAY-
MENTS.
‘‘(a) IN GENERAL.—Gross income shall not include
any qualified electric transmission easement payment.
‘‘(b) QUALIFIED ELECTRIC TRANSMISSION EASEMENT
PAYMENT.—For purposes of this section, the term ‘qualified
electric transmission payment’ means any payment which
is made—
‘‘(1) by an electric utility or electric trans-
mission entity pursuant to an easement or other
agreement granted by the payee (or any predecessor
of such payee), and
‘‘(2) for the right of such entity (or any succes-
sors of such entity) to locate on such payee’s property
transmission lines and equipment used to transmit
electricity at 230 or more kilovolts, primarily from
qualified facilities described in section 45(d) (without
regard to any placed in service date or the last sen-
tence of paragraph (4) thereof) or energy property (as