HEATR Act
Bill: S.4139 | Sponsor: Sen. Klobuchar, Amy (D-MN)
Policy area: Taxation

Summary:
Heating Efficiency and Affordability through Tax Relief Act or the HEATR Act
This bill allows a new tax credit through 2031 for energy efficient consumer and commercial heat pumps and heat pump water heaters.

To amend the Internal Revenue Code of 1986 to establish a tax credit 
  for manufacturers of high-efficiency heat pumps and heat pump water 
                                heaters.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Heating Efficiency and Affordability 
through Tax Relief Act'' or the ``HEATR Act''.

SEC. 2. ENERGY EFFICIENT PROPERTY CREDIT.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by inserting after 
section 45L the following:

``SEC. 45M. ENERGY EFFICIENT HEAT PUMP CREDIT.

    ``(a) Establishment of Credit.--
            ``(1) In general.--For purposes of section 38, the energy 
        efficient heat pump credit determined under this section for 
        any taxable year is an amount equal to the sum of the credit 
        amounts determined under paragraph (2) for each type of 
        qualified energy efficient heat pump produced by the taxpayer 
        during the calendar year ending with or within the taxable 
        year.
            ``(2) Credit amounts.--The credit amount determined for any 
        type of qualified energy efficient heat pump is--
                    ``(A) the applicable amount determined under 
                subsection (b) with respect to such type, multiplied by
                    ``(B) the eligible production for such type, as 
                determined under subsection (c).
    ``(b) Applicable Amount.--For purposes of subsection (a) and 
subject to subsections (f) and (h)(4), the applicable amount shall be 
determined as follows:
            ``(1) Heat pump water heaters.--
                    ``(A) Consumer heat pump water heaters.--In the 
                case of a consumer heat pump water heater which meets 
                the requirements of the Energy Star Water Heater 
                program which are in effect at the time that such water 
                heater is produced by the taxpayer, the applicable 
                amount shall be--
                            ``(i) in the case of a water heater with a 
                        volume of less than 55 gallons, $600, or
                            ``(ii) in the case of a water heater with a 
                        volume of not less than 55 gallons, $800.
                    ``(B) Commercial heat pump water heaters.--In the 
                case of a commercial heat pump water heater which meets 
                the requirements of the Energy Star Commercial Water 
                Heater program which are in effect at the time that 
                such water heater is produced by the taxpayer, the 
                applicable amount shall be the amount equal to the 
                product of--
                            ``(i) the heating capacity of such water 
                        heater, expressed in Btus per hour, multiplied 
                        by
                            ``(ii) 2.4 cents.
            ``(2) Heat pumps.--
                    ``(A) Consumer unitary heat pumps.--
                            ``(i) In general.--In the case of a 
                        consumer unitary heat pump, the applicable 
                        amount shall be--
                                    ``(I) in the case of a heat pump 
                                which satisfies the applicable 
                                requirement under clause (ii)--
                                            ``(aa) in the case of a 
                                        heat pump which is a ducted 
                                        system with a heating capacity 
                                        of not less than 22,000 Btus 
                                        per hour and which satisfies 
                                        the Energy Star Energy-
                                        Efficient Criteria for 
                                        Certified Residential Cold 
                                        Climate Heat Pumps or the 
                                        Energy Star Energy-Efficient 
                                        Criteria for Geothermal Heat 
                                        Pumps which are in effect at 
                                        the time that such heat pump is 
                                        produced by the taxpayer, 
                                        $1,000,
                                            ``(bb) in the case of an 
                                        electric heat pump which is not 
                                        described in item (aa) and is 
                                        produced during any calendar 
                                        year beginning after December 
                                        31, 2023, by a taxpayer which 
                                        has not produced any consumer 
                                        central air conditioner units 
                                        during such calendar year, 
                                        $600, or
                                            ``(cc) in the case of a 
                                        heat pump which is not 
                                        described in item (aa) or (bb), 
                                        $400, and
                                    ``(II) subject to clause (iii), in 
                                the case of a heat pump which does not 
                                satisfy the applicable requirement 
                                under clause (ii) and is produced 
                                during any calendar year beginning 
                                after December 31, 2023, by a taxpayer 
                                which has not produced any consumer 
                                central air conditioner units during 
                                such calendar year, $600.
                            ``(ii) Additional requirement.--The 
                        requirement described in this clause is the 
                        Energy Star Central Air Conditioner and Air 
                        Source Heat Pump Specification which is in 
                        effect at the time that the heat pump is 
                        produced by the taxpayer.
                            ``(iii) Limitation.--For purposes of clause 
                        (i)(II), if the total number of heat pumps 
                        described in such clause which are produced by 
                        the taxpayer during any calendar year beginning 
                        after December 31, 2023, exceeds the number of 
                        heat pumps described in clause (i)(I)(bb) which 
                        are produced by the taxpayer during such 
                        calendar year, clause (i)(II) shall not apply 
                        with respect to the amount of such excess.
                    ``(B) Commercial heat pumps.--
                            ``(i) In general.--In the case of a 
                        commercial heat pump which satisfies the 
                        applicable requirements under clause (ii), the 
                        applicable amount shall be the amount equal to 
                        the product of--
                                    ``(I) the heating capacity of such 
                                heat pump, expressed in Btus per hour, 
                                multiplied by
                                    ``(II) 2.4 cents.
                            ``(ii) Requirements.--The requirement 
                        described in this clause is--
                                    ``(I) in the case of an air-source 
                                unitary heat pump which has a cooling 
                                capacity of not greater than 240,000 
                                Btus per hour, such heat pump 
                                satisfies--
                                            ``(aa) the requirements of 
                                        the Energy Star Light 
                                        Commercial HVAC program which 
                                        are in effect at the time that 
                                        such heat pump is produced by 
                                        the taxpayer, or
                                            ``(bb) the highest 
                                        efficiency tier (not including 
                                        any advanced tier) established 
                                        by the Consortium for Energy 
                                        Efficiency which is in effect 
                                        at the time that such heat pump 
                                        is produced by the taxpayer, or
                                    ``(II) in the case of any heat pump 
                                which is not described in subclause 
                                (I), such heat pump exceeds the minimum 
                                efficiency standards under Reference 
                                Standard 90.1 by not less than 10 
                                percent, as determined under testing 
                                conditions specified in Reference 
                                Standard 90.1.
                            ``(iii) Heating capacity.--For purposes of 
                        clause (i)(I), in the case of an air-source 
                        heat pump, the heating capacity of such heat 
                        pump shall be determined using an ambient 
                        temperature of 17 degrees Fahrenheit.
                    ``(C) Industrial heat pump.--In the case of an 
                industrial heat pump, the applicable amount shall be 
                the amount equal to the product of--
                            ``(i) the heating capacity of such heat 
                        pump, expressed in Btus per hour, multiplied by
                            ``(ii)(I) in the case of a heat pump with a 
                        heating capacity of not greater than 2,400,000 
                        Btus per hour, 3.6 cents, or
                            ``(II) in the case of a heat pump with a 
                        heating capacity greater than 2,400,000 Btus 
                        per hour and a coefficient of performance of 
                        not less than 2.0, 1.8 cents.
    ``(c) Eligible Production.--Subject to subsection (h)(4), the 
eligible production in a calendar year with respect to each type of 
qualified energy efficient heat pump is the excess of--
            ``(1) the number of heat pumps of such type which are 
        produced by the taxpayer in the United States during such 
        calendar year, over
            ``(2) the average number of heat pumps of such type which 
        were produced by the taxpayer (or any predecessor) in the 
        United States during the preceding 3-calendar year period.
    ``(d) Types of Qualified Energy Efficient Heat Pumps.--For purposes 
of this section, the types of qualified energy efficient heat pumps 
are--
            ``(1) consumer heat pump water heaters described in 
        subparagraph (A) of subsection (b)(1),
            ``(2) commercial heat pump water heaters described in 
        subparagraph (B) of such subsection,
            ``(3) consumer unitary heat pumps described in subparagraph 
        (A)(i) of subsection (b)(2),
            ``(4) commercial heat pumps described in subparagraph 
        (B)(i) of such subsection, and
            ``(5) industrial heat pumps described in subparagraph (C) 
        of such subsection.
    ``(e) Limitations.--
            ``(1) Aggregate credit amount allowed.--The aggregate 
        amount of credit allowed under subsection (a) with respect to a 
        taxpayer for any taxable year shall not exceed an amount equal 
        to the sum of--
                    ``(A) with respect to any consumer unitary heat 
                pumps described in subsection (b)(2)(A)(i)(I)(bb), 
                $300,000,000 reduced by the amount of the credit 
                allowed under subsection (a) to the taxpayer (or any 
                predecessor) with respect to such heat pumps for all 
                prior taxable years beginning after December 31, 2023, 
                plus
                    ``(B) with respect to any qualified energy 
                efficient heat pumps (including any consumer unitary 
                heat pumps described in subsection (b)(2)(A)(i)(I)(bb) 
                which are not included under subparagraph (A)), 
                $400,000,000 reduced by the amount of the credit 
                allowed under subsection (a) to the taxpayer (or any 
                predecessor) with respect to such heat pumps for all 
                prior taxable years beginning after December 31, 2021.
            ``(2) Limitation based on gross receipts.--The credit 
        allowed under subsection (a) with respect to a taxpayer for the 
        taxable year shall not exceed an amount equal to 4 percent of 
        the average 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.
    ``(f) Adjustment of Energy Efficiency Criteria and Test 
Procedures.--
            ``(1) Adjustment of energy efficiency criteria for 
        industrial heat pumps.--Not later than December 31, 2023, and 
        every 2 years thereafter, the Secretary, in consultation with 
        the Secretary of Energy, shall--
                    ``(A) review the requirement with respect to 
                coefficient of performance for industrial heat pumps 
                under subsection (b)(2)(C)(ii)(II), and
                    ``(B) as necessary, prescribe regulations or other 
                guidance which revise any such requirement to ensure 
                that--
                            ``(i) the credit allowed under subsection 
                        (a) only applies to industrial heat pumps which 
                        are the most efficient industrial heat pumps 
                        that are commercially available, and
                            ``(ii) not less than 3 manufacturers 
                        produce such heat pumps across a range of 
                        product heating capacities.
            ``(2) Test methods and procedures.--
                    ``(A) Industrial heat pumps.--Not later than the 
                date which is 12 months after the date of enactment of 
                this Act, the Secretary of Energy shall prescribe 
                regulations or other guidance which establish test 
                methods and procedures to determine the coefficient of 
                performance for industrial heat pumps.
                    ``(B) ANSI and iso test methods and procedures.--
                For purposes of developing the test methods and 
                procedures described in subparagraph (A), the Secretary 
                of Energy shall expand upon any relevant test methods 
                and procedures established by the American National 
                Standards Institute and the International Organization 
                for Standardization which are in effect as of the date 
                of enactment of the Heating Efficiency and 
                Affordability through Tax Relief Act.
    ``(g) Definitions.--In this section--
            ``(1) Btus.--The term `Btus' means British thermal units.
            ``(2) Coefficient of performance.--
                    ``(A) In general.--The term `coefficient of 
                performance' means the ratio of heat output to energy 
                input.
                    ``(B) Default.--Until such time as the Secretary of 
                Energy issues regulations or guidance under subsection 
                (f)(2), in the case of any industrial heat pump, any 
                determination with respect to coefficient of 
                performance for purposes of this section shall be 
                determined using any test methods or procedures 
                employed by the taxpayer which produced such heat pump, 
                provided that such taxpayer makes any test conditions 
                and assumptions with respect to such methods or 
                procedures publicly available.
            ``(3) Commercial heat pump.--The term `commercial heat 
        pump' means a heat pump which--
                    ``(A) is designed to provide space heating and 
                cooling, and
                    ``(B) is not described in subparagraph (B) of 
                paragraph (6).
            ``(4) Commercial heat pump water heater.--The term 
        `commercial heat pump water heater' means a water heater which 
        uses a heat pump to heat water and is not described in 
        subparagraph (A) or (B) of paragraph (5).
            ``(5) Consumer heat pump water heater.--The term `consumer 
        heat pump water heater' means a water heater which uses a heat 
        pump to heat water and has a maximum current rating of 24 
        amperes at a voltage not greater than 250 volts.
            ``(6) Consumer unitary heat pump.--The term `consumer 
        unitary heat pump' means a heat pump which--
                    ``(A) is designed to provide space heating and 
                cooling, and
                    ``(B) has a cooling capacity of not greater than 
                65,000 Btus per hour.
            ``(7) Industrial heat pump.--The term `industrial heat 
        pump' means a heat pump which--
                    ``(A) upgrades industrial waste heat to a higher 
                temperature, and
                    ``(B) such heat is produced and supplied to an 
                industrial facility in a manner which is more energy 
                efficient than conventional heating methods, such as a 
                steam or electric resistance boiler.
            ``(8) Qualified energy efficient heat pump.--The term 
        `qualified energy efficient heat pump' means--
                    ``(A) any consumer heat pump water heater described 
                in subparagraph (A) of subsection (b)(1),
                    ``(B) any commercial heat pump water heater 
                described in subparagraph (B) of such subsection,
                    ``(C) any consumer unitary heat pump described in 
                subparagraph (A) of subsection (b)(2),
                    ``(D) any commercial heat pump described in 
                subparagraph (B) of such subsection, and
                    ``(E) any industrial heat pump described in 
                subparagraph (C) of such subsection.
            ``(9) Produced.--The term `produced' includes manufactured 
        or assembled.
            ``(10) Reference standard 90.1.--The term `Reference 
        Standard 90.1' means, with respect to any heat pump, the most 
        recent Standard 90.1 published by the American Society of 
        Heating, Refrigerating, and Air Conditioning Engineers which is 
        in effect at the time that such heat pump is produced by the 
        taxpayer.
    ``(h) Special Rules.--For purposes of this section--
            ``(1) In general.--Rules similar to the rules of 
        subsections (c), (d), and (e) of section 52 shall apply.
            ``(2) Controlled group.--
                    ``(A) In general.--All persons treated as a single 
                employer under subsection (a) or (b) of section 52 or 
                subsection (m) or (o) of section 414 shall be treated 
                as a single producer.
                    ``(B) Inclusion of foreign corporations.--For 
                purposes of subparagraph (A), in applying subsections 
                (a) and (b) of section 52 to this section, section 1563 
                shall be applied without regard to subsection (b)(2)(C) 
                thereof.
            ``(3) Verification.--No amount shall be allowed as a credit 
        under subsection (a) with respect to which the taxpayer has not 
        submitted such information or certification as the Secretary, 
        in consultation with the Secretary of Energy, determines 
        necessary.
            ``(4) 10 percent increase in applicable amount for heat 
        pumps produced in union facilities.--In the case of any 
        qualified energy efficient heat pump which is produced in a 
        facility operating under a collective bargaining agreement 
        negotiated by an employee organization (as defined in section 
        412(c)(4)), determined in a manner consistent with section 
        7701(a)(46), for purposes of determining the credit amount 
        under subsection (a)(2) with respect to such heat pump, the 
        applicable amount determined under subsection (b) with respect 
        to such heat pump shall be increased by an amount equal to 10 
        percent of the applicable amount otherwise in effect under such 
        subsection.
    ``(i) Election for Direct Payment.--
            ``(1) In general.--In the case of a taxpayer making an 
        election (at such time and in such manner as the Secretary may 
        provide) under this subsection with respect to any credit 
        determined under subsection (a) with respect to such taxpayer, 
        such taxpayer shall be treated as making a payment against the 
        tax imposed by subtitle A (for the taxable year with respect to 
        which such credit was determined) equal to the amount of such 
        credit.
            ``(2) Special rules.--For purposes of this subsection--
                    ``(A) Application to partnerships and s 
                corporations.--
                            ``(i) In general.--In the case of any 
                        credit determined under subsection (a) with 
                        respect to any property produced by a 
                        partnership or S corporation, if such 
                        partnership or S corporation makes an election 
                        under paragraph (1) (in such manner as the 
                        Secretary may provide) with respect to such 
                        credit--
                                    ``(I) the Secretary shall make a 
                                payment to such partnership or S 
                                corporation equal to the amount of such 
                                credit,
                                    ``(II) paragraph (4) shall be 
                                applied with respect to such credit 
                                before determining any partner's 
                                distributive share, or shareholder's 
                                pro rata share, of such credit,
                                    ``(III) any amount with respect to 
                                which the election in paragraph (1) is 
                                made shall be treated as tax exempt 
                                income for purposes of sections 705 and 
                                1366, and
                                    ``(IV) a partner's distributive 
                                share of such tax exempt income shall 
                                be based on such partner's distributive 
                                share of such credit for each taxable 
                                year.
                            ``(ii) Coordination with application at 
                        partner or shareholder level.--In the case of 
                        any partnership or S corporation, paragraph (1) 
                        shall be applied at the partner or shareholder 
                        level after application of clause (i)(II).
                    ``(B) Elections.--Any election under paragraph (1) 
                shall be made not later than the due date (including 
                extensions of time) for the return of tax for the 
                taxable year for which the election is made. Any such 
                election, once made, shall be irrevocable. Any election 
                under paragraph (1) shall apply with respect to any 
                credit for the taxable year for which the election is 
                made.
                    ``(C) Timing.--The payment described in paragraph 
                (1) shall be treated as made on the later of the due 
                date (determined without regard to extensions) of the 
                return of tax for the taxable year or the date on which 
                such return is filed.
                    ``(D) Treatment of payments to partnerships and s 
                corporations.--For purposes of section 1324 of title 
                31, United States Code, the payments under subparagraph 
                (A)(i)(I) shall be treated in the same manner as a 
                refund due from a credit provision referred to in 
                subsection (b)(2) of such section.
                    ``(E) Additional information.--As a condition of, 
                and prior to, a payment under this subsection, the 
                Secretary may require such information or registration 
                as the Secretary deems necessary or appropriate for 
                purposes of preventing duplication, fraud, improper 
                payments, or excessive payments under this subsection.
                    ``(F) Excessive payment.--
                            ``(i) In general.--In the case of a payment 
                        made to a taxpayer under this paragraph or any 
                        amount treated as a payment which is made by 
                        the taxpayer under paragraph (1) which the 
                        Secretary determines constitutes an excessive 
                        payment, the tax imposed on such taxpayer by 
                        chapter 1 for the taxable year in which such 
                        determination is made shall be increased by an 
                        amount equal to the sum of--
                                    ``(I) the amount of such excessive 
                                payment, plus
                                    ``(II) an amount equal to 20 
                                percent of such excessive payment.
                            ``(ii) Reasonable cause.--Clause (i)(II) 
                        shall not apply if the taxpayer demonstrates to 
                        the satisfaction of the Secretary that the 
                        excessive payment resulted from reasonable 
                        cause.
                            ``(iii) Excessive payment defined.--For 
                        purposes of this subparagraph, the term 
                        `excessive payment' means, with respect to an 
                        election is made under this subsection for any 
                        taxable year, an amount equal to the excess 
                        of--
                                    ``(I) the amount of the payment 
                                made to the taxpayer under this 
                                paragraph or any amount treated as a 
                                payment which is made by the taxpayer 
                                under paragraph (1) for such taxable 
                                year, over
                                    ``(II) the amount of the credit 
                                which, without application of this 
                                paragraph, would be otherwise allowable 
                                (determined without regard to section 
                                38(c)) under subsection (a) for such 
                                taxable year.
            ``(3) Denial of double benefit.--In the case of a taxpayer 
        making an election under this subsection with respect to the 
        credit allowed under subsection (a), such credit shall be 
        reduced to zero and shall, for any other purposes under this 
        title, be deemed to have been allowed to the taxpayer for such 
        taxable year.
            ``(4) Mirror code possessions.--In the case of any 
        possession of the United States with a mirror code tax system 
        (as defined in section 24(k)), this subsection shall not be 
        treated as part of the income tax laws of the United States for 
        purposes of determining the income tax law of such possession 
        unless such possession elects to have this subsection be so 
        treated.
            ``(5) Regulations.--The Secretary shall issue such 
        regulations or other guidance as may be necessary or 
        appropriate to carry out the purposes of this subsection, 
        including--
                    ``(A) regulations or other guidance providing rules 
                for determining a partner's distributive share of the 
                tax exempt income described in paragraph 
                (2)(A)(i)(III), and
                    ``(B) guidance to ensure that the amount of the 
                payment or deemed payment made under this subsection is 
                commensurate with the amount of the credit that would 
                be otherwise allowable (determined without regard to 
                section 38(c)).
    ``(j) Termination.--This section shall not apply with respect to 
any property produced after December 31, 2031.''.
    (b) Conforming Amendments.--
            (1) Section 38(b) of the Internal Revenue Code of 1986 is 
        amended--
                    (A) by redesignating paragraphs (26) through (33) 
                as paragraphs (27) through (34), respectively, and
                    (B) by inserting after paragraph (25) the 
                following:
            ``(26) the energy efficient heat pump credit determined 
        under section 45M,''.
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1 of the Internal Revenue Code of 1986 
        is amended by inserting after the item relating to section 45L 
        the following item:

``Sec. 45M. Energy efficient heat pump credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property produced after the date of enactment of this Act.
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