[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 293 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 293

To amend the Internal Revenue Code of 1986 to provide a refundable tax 
    credit against increased residential energy costs and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 8, 2001

Mr. Harkin (for himself, Mr. Durbin, Mrs. Clinton, Mr. Dorgan, and Mr. 
   Kennedy) introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide a refundable tax 
    credit against increased residential energy costs and for other 
                               purposes.

    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 ``Home Energy Assistance Tax Act''.

SEC. 2. REFUNDABLE TAX CREDIT AGAINST INCREASED RESIDENTIAL ENERGY 
              COSTS.

    (a) In General.--Subpart C of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to refundable credits) 
is amended by redesignating section 35 as section 36 and by inserting 
after section 34 the following new section:

``SEC. 35. CREDIT AGAINST INCREASED RESIDENTIAL ENERGY COSTS.

    ``(a) General Rule.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this subtitle for the 
taxable year an amount equal to 50 percent of the amount paid or 
incurred during such taxable year for increased residential energy 
costs.
    ``(b) Limitations.--
            ``(1) Based on adjusted gross income.--The amount of the 
        credit allowable under subsection (a) for any taxable year 
        shall be reduced (but not below zero) by 2 percentage points 
        for each $1,000 (or fraction thereof) by which the taxpayer's 
        adjusted gross income for the taxable year exceeds $75,000.
            ``(2) Maximum credit per household.--
                    ``(A) In general.--In the case of any household, 
                the credit under subsection (a) shall be allowed only 
                to the individual residing in such household who 
                furnishes the largest portion (whether or not more than 
                one-half) of the cost of maintaining such household.
                    ``(B) Determination of amount.--In the case of an 
                individual described in subparagraph (A), such 
                individual shall, for purposes of determining the 
                amount of the credit allowed under subsection (a), be 
                treated as having paid or incurred during such taxable 
                year for increased residential energy costs an amount 
                equal to the sum of the amounts paid or incurred for 
                such costs by all individuals residing in such 
                household (including any amount allocable to any such 
                individual under subsection (d)).
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Increased residential energy costs.--The term 
        `increased residential energy costs' means, with respect to any 
        principal residence of the taxpayer located in the United 
        States, the sum of--
                    ``(A) in the case of the purchase of any energy 
                utility, the excess (if any) of--
                            ``(i) the cost incurred with respect to 
                        such residence for the period of 4 monthly 
                        billing cycles beginning on the starting date 
                        of the first billing cycle of the utility after 
                        October 30, 2000, over
                            ``(ii) the sum of--
                                    ``(I) such cost for such period 
                                beginning on the starting date of the 
                                first billing cycle of the utility 
                                after October 30, 1999, plus
                                    ``(II) $100, plus
                    ``(B) in the case of the direct purchase of any 
                fuel, the excess (if any) of--
                            ``(i) the average county retail cost for 
                        such fuel for the period beginning after 
                        November 14, 2000, and ending before March 16, 
                        2001, over
                            ``(ii) such average county retail cost for 
                        the period beginning after November 14, 1999, 
                        and ending before March 16, 2000.
            ``(2) Special rules regarding residential energy costs.--
                    ``(A) Average county retail fuel costs.--For 
                purposes of paragraph (1)(B), the Secretary, in 
                consultation with the Under Secretary of Oceans and 
                Atmosphere, the Secretary of Energy, and the Secretary 
                of Housing and Urban Development, shall determine the 
                average county retail cost of any fuel by estimating 
                the amount of fuel necessary to heat the average size 
                residence in the county and the average cost of such 
                fuel. The Secretary shall make such determinations for 
                each county not later than December 31, 2001.
                    ``(B) Energy utility costs for new residences.--
                With respect to residences first placed in service 
                during or after the 4-month period described in 
                paragraph (1)(A)(ii)(I), such paragraph shall be 
                applied by substituting the average county retail 
                energy utility cost for such period as determined by 
                the Secretary under rules similar to the rules under 
                subparagraph (A).
                    ``(C) Reduction for grants.--The amount of 
                residential energy costs which may be taken into 
                account shall be reduced by any amount received by the 
                taxpayer for any residential energy cost under any 
                Federal, State, or local program.
            ``(3) Principal residence.--The term `principal residence' 
        has the same meaning as in section 121, except that--
                    ``(A) no ownership requirement shall be imposed, 
                and
                    ``(B) the principal residence must be used by the 
                taxpayer as the taxpayer's residence during the taxable 
                year.
    ``(d) Homeowners Associations.--The application of this section to 
homeowners associations (as defined in section 528(c)(1)) or members of 
such associations, and tenant-stockholders in cooperative housing 
corporations (as defined in section 216), shall be allowed by 
allocation, apportionment, or otherwise, to the individuals paying, 
directly or indirectly, for the increased residential energy cost so 
incurred.
    ``(e) Applicability of Section.--This section shall apply to 
taxable years beginning in 2001.''.
    (b) Conforming Amendment.--Section 1324(b)(2) of title 31, United 
States Code, is amended by striking ``or'' before ``enacted'' and by 
inserting before the period at the end ``, or from section 35 of such 
Code''.
    (c) Clerical Amendments.--The table of sections for subpart C of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by striking the item relating to section 35 and by 
adding at the end the following new items:

                              ``Sec. 35. Credit against increased 
                                        residential energy costs.
                              ``Sec. 36. Overpayments of tax.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning in 2001.

SEC. 3. INCENTIVE FOR CERTAIN ENERGY EFFICIENT PROPERTY USED IN 
              BUSINESS.

    (a) In General.--Part VI of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by adding at the end the 
following new section:

``SEC. 199. ENERGY PROPERTY DEDUCTION.

    ``(a) In General.--There shall be allowed as a deduction for the 
taxable year an amount equal to the sum of--
            ``(1) the amount determined under subsection (b) for each 
        energy property of the taxpayer placed in service during such 
        taxable year, and
            ``(2) the energy efficient commercial building amount 
        determined under subsection (f).
    ``(b) Amount for Energy Property.--
            ``(1) In general.--The amount determined under this 
        subsection for the taxable year for each item of energy 
        property shall equal the amount specified for such property in 
        the following table:
      

------------------------------------------------------------------------
     Description of property:               Allowable amount is:
------------------------------------------------------------------------
Elected solar hot water property..      $1.00 per each kwh/year of
                                     savings.
Photovoltaic property.............      $4.50 per peak watt.
Natural gas heat pump described in      $3,000.
 subsection (d)(2)(C).
Tier 2 energy-efficient building        $1,500.
 property (other than a natural
 gas heat pump).
Tier 1 energy-efficient building        $750.
 property.
------------------------------------------------------------------------

            ``(2) Elected solar hot water property.--In the case of 
        elected solar hot water property, the taxpayer may elect to 
        substitute `$21 per annual Therm of natural gas savings' for 
        `$1.00 per each kwh/year of savings' in the table contained in 
        paragraph (1).
    ``(c) Energy Property Defined.--
            ``(1) In general.--For purposes of this part, the term 
        `energy property' means any property--
                    ``(A) which is--
                            ``(i) solar energy property,
                            ``(ii) Tier 2 energy-efficient building 
                        property, or
                            ``(iii) Tier 1 energy-efficient building 
                        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) with respect to which depreciation (or 
                amortization in lieu of depreciation) is allowable, and
                    ``(D) which meets the performance and quality 
                standards, and the certification requirements (if any), 
                which--
                            ``(i) have been prescribed by the Secretary 
                        by regulations (after consultation with the 
                        Secretary of Energy or the Administrator of the 
                        Environmental Protection Agency, as 
                        appropriate),
                            ``(ii) in the case of the energy efficiency 
                        ratio (EER)--
                                    ``(I) require measurements to be 
                                based on published data which is tested 
                                by manufacturers at 95 degrees 
                                Fahrenheit, and
                                    ``(II) do not require ratings to be 
                                based on certified data of the Air 
                                Conditioning and Refrigeration 
                                Institute, and
                            ``(iii) are in effect at the time of the 
                        acquisition of the property.
            ``(2) Solar energy property.--In the case of--
                    ``(A) elected solar hot water property, the 
                regulations under paragraph (1)(D) shall be based on 
                the OG-300 Standard for the Annual Performance of OG-
                300 Certified Systems of the Solar Rating and 
                Certification Corporation, and
                    ``(B) photovoltaics, such regulations shall be 
                based on the ASTM Standard E 1036 and E 1036M-96 
                Standard Test Method for Electric Performance of 
                Nonconcentrator Terrestrial Photovoltaic Modules and 
                Arrays Using Reference Cells,
        to the extent the Secretary determines such standards carry out 
        the purposes of this section.
            ``(3) Exception.--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).
    ``(d) Definitions Relating to Types of Energy Property.--For 
purposes of this section--
            ``(1) Solar energy property.--
                    ``(A) In general.--The term `solar energy property' 
                means equipment which uses solar energy--
                            ``(i) to generate electricity, or
                            ``(ii) to provide hot water for use in a 
                        structure.
                    ``(B) Elected solar hot water property.--
                            ``(i) In general.--The term `elected solar 
                        hot water property' means property which is 
                        solar energy property by reason of subparagraph 
                        (A)(ii) and for which an election under this 
                        subparagraph is in effect.
                            ``(ii) Election.--For purposes of clause 
                        (i), a taxpayer may elect to treat property 
                        described in clause (i) as elected solar hot 
                        water property.
                    ``(C) Photovoltaic property.--The term 
                `photovoltaic property' means solar energy property 
                which uses a solar photovoltaic process to generate 
                electricity.
                    ``(D) Swimming pools, etc., used as storage 
                medium.--The term `solar energy property' shall not 
                include a swimming pool, hot tub, or any other energy 
                storage medium which has a function other than the 
                function of such storage.
                    ``(E) 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 structural component of the 
                structure on which it is installed.
            ``(2) Tier 2 energy-efficient building property.--The term 
        `Tier 2 energy-efficient building property' means--
                    ``(A) an electric heat pump water heater that 
                yields an energy factor of 1.7 or greater,
                    ``(B) an electric heat pump that has a heating 
                seasonal performance factor (HSPF) of 9 or greater and 
                a seasonal energy efficiency ratio (SEER) of 15 or 
                greater and an energy efficiency ratio (EER) of 12.5 or 
                greater,
                    ``(C) a natural gas heat pump that has a 
                coefficient of performance of not less than 1.25 for 
                heating and not less than 0.70 for cooling,
                    ``(D) a central air conditioner that has a seasonal 
                energy efficiency ratio (SEER) of 15 or greater and a 
                EER of 12.5 or greater, and
                    ``(E) a natural gas water heater that has an energy 
                factor of at least 0.80.
            ``(3) Tier 1 energy-efficient building property.--The term 
        `Tier 1 energy-efficient building property' means--
                    ``(A) an electric heat pump that has a heating 
                system performance factor (HSPF) of 7.5 or greater and 
                a cooling seasonal energy efficiency ratio (SEER) of 
                13.5 or greater and an energy efficiency ratio (EER) of 
                11.5 or greater,
                    ``(B) a central air conditioner that has a cooling 
                seasonal energy efficiency ratio (SEER) of 13.5 or 
                greater and an EER of 11.5 or greater, and
                    ``(C) a natural gas water heater that has an energy 
                factor of at least 0.65.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Basis reduction.--For purposes of this subtitle, if a 
        deduction is allowed under this section with respect to any 
        energy property, the basis of such property shall be reduced by 
        the amount of the deduction so allowed.
            ``(2) Double benefit.--Property which would, but for this 
        paragraph, be eligible for deduction under more than one 
        provision of this section shall be eligible only under one such 
        provision, the provision specified by the taxpayer.
    ``(f) Energy Efficient Commercial Building Property Deduction.--
            ``(1) Deduction allowed.--For purposes of subsection (a)--
                    ``(A) In general.--The energy efficient commercial 
                building property deduction determined under this 
                subsection is an amount equal to energy efficient 
                commercial building property expenditures made by a 
                taxpayer for the taxable year.
                    ``(B) Maximum amount of deduction.--The amount of 
                energy efficient commercial building property 
                expenditures taken into account under subparagraph (A) 
                shall not exceed an amount equal to the product of--
                            ``(i) $2.25, and
                            ``(ii) the square footage of the building 
                        with respect to which the expenditures are 
                        made.
                    ``(C) Year deduction allowed.--The deduction under 
                subparagraph (A) shall be allowed in the taxable year 
                in which the construction of the building is completed.
            ``(2) Energy efficient commercial building property 
        expenditures.--For purposes of this subsection, the term 
        `energy efficient commercial building property expenditures' 
        means an amount paid or incurred for energy efficient 
        commercial building property installed on or in connection with 
        new construction or reconstruction of property--
                    ``(A) for which depreciation is allowable under 
                section 167,
                    ``(B) which is located in the United States, and
                    ``(C) the construction or erection of which is 
                completed by the taxpayer.
        Such property includes all residential rental property, 
        including low-rise multifamily structures and single family 
        housing property which is not within the scope of Standard 
        90.1-1999 (described in paragraph (3)). Such term includes 
        expenditures for labor costs properly allocable to the onsite 
        preparation, assembly, or original installation of the 
        property.
            ``(3) Energy efficient commercial building property.--For 
        purposes of paragraph (2)--
                    ``(A) In general.--The term `energy efficient 
                commercial building property' means any property which 
                reduces total annual energy and power costs with 
                respect to the lighting, heating, cooling, ventilation, 
                and hot water supply systems of the building by 50 
                percent or more in comparison to a reference building 
                which meets the requirements of Standard 90.1-1999 of 
                the American Society of Heating, Refrigerating, and Air 
                Conditioning Engineers and the Illuminating Engineering 
                Society of North America using methods of calculation 
                under subparagraph (B) and certified by qualified 
                professionals as provided under paragraph (6).
                    ``(B) Methods of calculation.--The Secretary, in 
                consultation with the Secretary of Energy, shall 
                promulgate regulations which describe in detail methods 
                for calculating and verifying energy and power 
                consumption and cost, taking into consideration the 
                provisions of the 1998 California Nonresidential ACM 
                Manual. These procedures shall meet the following 
                requirements:
                            ``(i) In calculating tradeoffs and energy 
                        performance, the regulations shall prescribe 
                        the costs per unit of energy and power, such as 
                        kilowatt hour, kilowatt, gallon of fuel oil, 
                        and cubic foot or Btu of natural gas, which may 
                        be dependent on time of usage.
                            ``(ii) The calculational methodology shall 
                        require that compliance be demonstrated for a 
                        whole building. If some systems of the 
                        building, such as lighting, are designed later 
                        than other systems of the building, the method 
                        shall provide that either--
                                    ``(I) the expenses taken into 
                                account under paragraph (1) shall not 
                                occur until the date designs for all 
                                energy-using systems of the building 
                                are completed,
                                    ``(II) the energy performance of 
                                all systems and components not yet 
                                designed shall be assumed to comply 
                                minimally with the requirements of such 
                                Standard 90.1-1999, or
                                    ``(III) the expenses taken into 
                                account under paragraph (1) shall be a 
                                fraction of such expenses based on the 
                                performance of less than all energy-
                                using systems in accordance with clause 
                                (iii).
                            ``(iii) The expenditures in connection with 
                        the design of subsystems in the building, such 
                        as the envelope, the heating, ventilation, air 
                        conditioning and water heating system, and the 
                        lighting system shall be allocated to the 
                        appropriate building subsystem based on system-
                        specific energy cost savings targets in 
                        regulations promulgated by the Secretary of 
                        Energy which are equivalent, using the 
                        calculation methodology, to the whole building 
                        requirement of 50 percent savings.
                            ``(iv) The calculational methods under this 
                        subparagraph need not comply fully with section 
                        11 of such Standard 90.1-1999.
                            ``(v) The calculational methods shall be 
                        fuel neutral, such that the same energy 
                        efficiency features shall qualify a building 
                        for the deduction under this subsection 
                        regardless of whether the heating source is a 
                        gas or oil furnace or an electric heat pump.
                            ``(vi) The calculational methods shall 
                        provide appropriate calculated energy savings 
                        for design methods and technologies not 
                        otherwise credited in either such Standard 
                        90.1-1999 or in the 1998 California 
                        Nonresidential ACM Manual, including the 
                        following:
                                    ``(I) Natural ventilation.
                                    ``(II) Evaporative cooling.
                                    ``(III) Automatic lighting controls 
                                such as occupancy sensors, photocells, 
                                and timeclocks.
                                    ``(IV) Daylighting.
                                    ``(V) Designs utilizing semi-
                                conditioned spaces that maintain 
                                adequate comfort conditions without air 
                                conditioning or without heating.
                                    ``(VI) Improved fan system 
                                efficiency, including reductions in 
                                static pressure.
                                    ``(VII) Advanced unloading 
                                mechanisms for mechanical cooling, such 
                                as multiple or variable speed 
                                compressors.
                                    ``(VIII) The calculational methods 
                                may take into account the extent of 
                                commissioning in the building, and 
                                allow the taxpayer to take into account 
                                measured performance that exceeds 
                                typical performance.
                    ``(C) Computer software.--
                            ``(i) In general.--Any calculation under 
                        this paragraph shall be prepared by qualified 
                        computer software.
                            ``(ii) Qualified computer software.--For 
                        purposes of this subparagraph, 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 calculating energy 
                                and power consumption and costs as 
                                required by the Secretary,
                                    ``(II) which provides such forms as 
                                required to be filed by the Secretary 
                                in connection with energy efficiency of 
                                property and the deduction allowed 
                                under this subsection, and
                                    ``(III) which provides a notice 
                                form which summarizes the energy 
                                efficiency features of the building and 
                                its projected annual energy costs.
            ``(4) Allocation of deduction for public property.--In the 
        case of energy efficient commercial building property installed 
        on or in public property, 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 
        subsection.
            ``(5) Notice to owner.--The qualified individual shall 
        provide an explanation to the owner of the building regarding 
        the energy efficiency features of the building and its 
        projected annual energy costs as provided in the notice under 
        paragraph (3)(C)(ii)(III).
            ``(6) Certification.--
                    ``(A) In general.--Except as provided in this 
                paragraph, the Secretary, in consultation with the 
                Secretary of Energy, shall establish requirements for 
                certification and compliance procedures similar to the 
                procedures under section 25B(c)(7).
                    ``(B) Qualified individuals.--Individuals qualified 
                to determine compliance shall be only those individuals 
                who are recognized by an organization certified by the 
                Secretary for such purposes.
                    ``(C) Proficiency of qualified individuals.--The 
                Secretary shall consult with nonprofit organizations 
                and State agencies with expertise in energy efficiency 
                calculations and inspections to develop proficiency 
                tests and training programs to qualify individuals to 
                determine compliance.
    ``(g) Regulations.--The Secretary shall promulgate such regulations 
as necessary to take into account new technologies regarding energy 
efficiency and renewable energy for purposes of determining energy 
efficiency and savings under this section.
    ``(h) Application of Section.--This section shall apply with 
respect to--
            ``(1) Tier 1 energy-efficient building property placed in 
        service before January 1, 2006,
            ``(2) any other energy property placed in service before 
        January 1, 2008, and
            ``(3) any energy efficient commercial building property 
        expenditures in connection with property--
                    ``(A) the plans for which are certified under 
                subsection (f)(6) before January 1, 2008, and
                    ``(B) the construction of which is completed before 
                January 1, 2010.''.
    (b) Conforming Amendments.--
            (1) Section 48(a)(3)(A) of such Code is amended to read as 
        follows:
                    ``(A) which is 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 electricity generated by 
                geothermal power, up to (but not including) the 
                electrical transmission stage,''.
            (2) Subparagraph (B) of section 168(e)(3) of such Code is 
        amended--
                    (A) in clause (vi)(I)--
                            (i) by striking ``section 48(a)(3)'' and 
                        inserting ``section 199(d)(1)'', and
                            (ii) by striking ``clause (i)'' and 
                        inserting ``such subparagraph (A)'', and
                    (B) in the last sentence, by striking ``section 
                48(a)(3)'' and inserting ``section 199(c)(3)''.
            (3) Section 1016(a) of such Code is amended by striking 
        ``and'' at the end of paragraph (26), by striking the period at 
        the end of paragraph (27) and inserting ``, and'', and by 
        inserting the following new paragraph:
            ``(28) for amounts allowed as a deduction under section 
        199(a).''.
    (c) Clerical Amendment.--The table of sections for part VI of 
subchapter B of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 199. Energy property deduction.''.
    (d) Authorization of Appropriations.--There are authorized to be 
appropriated to the Department of Energy out of amounts not already 
appropriated such sums as necessary to carry out this section.
    (e) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to property placed 
        in service after December 31, 2000.
            (2) Energy efficient commercial building property.--In the 
        case of energy efficient commercial building property, as 
        defined in section 199(f)(3) of the Internal Revenue Code of 
        1986, as added by subsection (a), the amendments made by this 
        section shall apply to expenditures after September 30, 2001.

SEC. 4. CREDIT FOR CERTAIN NONBUSINESS ENERGY PROPERTY.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 25A the 
following new section:

``SEC. 25B. NONBUSINESS ENERGY PROPERTY.

    ``(a) Allowance of Credit.--In the case of an individual, 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) the amount determined under subsection (b) for each 
        qualified energy property of the taxpayer placed in service 
        during such taxable year, and
            ``(2) the credit amount specified in the following table 
        for a new, highly energy-efficient principal residence:

``New, highly energy-efficient                           Credit amount:
        principal residence:
        30 percent property....................................   $750 
        50 percent property.................................... $2,000.
    ``(b) Amount for Qualified Energy Property.--
            ``(1) Residential energy property expenditures.--Except as 
        provided in paragraph (2), the amount determined under this 
        subsection for the taxable year for each item of qualified 
        energy property shall equal the amount of residential energy 
        property expenditures made by the taxpayer with respect to such 
        property during such taxable year.
            ``(2) Solar hot water property; photovoltaic property.--
                    ``(A) In general.--In the case of solar hot water 
                property and photovoltaic property, the amount 
                determined under this subsection for the taxable year 
                shall equal the amount specified for such property in 
                the following table:
      

------------------------------------------------------------------------
     Description of property:               Allowable amount is:
------------------------------------------------------------------------
Elected solar hot water property..      35 cents per each kwh/year of
                                     savings.
Photovoltaic property.............      $1.50 per peak watt.
------------------------------------------------------------------------

                    ``(B) Elected solar hot water property.--In the 
                case of elected solar hot water property, the taxpayer 
                may elect to substitute `$7 per annual Therm of natural 
                gas savings' for `35 cents per each kwh/year of 
                savings' in the table contained in subparagraph (A).
            ``(3) Maximum amount.--In the case of property described in 
        the following table, the amount of expenditures taken into 
        account under paragraph (1) and the amount determined under 
        paragraph (2) for the taxable year for each item of qualified 
        energy property with respect to a dwelling unit shall not 
        exceed the amount specified for such property in such table:

      

------------------------------------------------------------------------
  ``Description of property item:    Maximum allowable credit amount is:
------------------------------------------------------------------------
Tier 2 energy-efficient building         $500.
 property (other than a natural
 gas heat pump).
Natural gas heat pump described in      $1,000.
 section 199(d)(2)(C).
Tier 1 energy-efficient building        $ 250.
 property.
Solar hot water property..........      $1,000.
Photovoltaic property.............      $6,000.
------------------------------------------------------------------------

    ``(c) Definitions.--For purposes of this section--
            ``(1) Residential energy property expenditures.--The term 
        `residential energy property expenditures' means expenditures 
        made by the taxpayer for qualified energy property installed on 
        or in connection with a dwelling unit which--
                    ``(A) is located in the United States, and
                    ``(B) is used by the taxpayer as a residence.
        Such term includes expenditures for labor costs properly 
        allocable to the onsite preparation, assembly, or original 
        installation of the property.
            ``(2) Qualified energy property.--
                    ``(A) In general.--The term `qualified energy 
                property' means--
                            ``(i) energy-efficient building property,
                            ``(ii) solar hot water property, and
                            ``(iii) photovoltaic property.
                    ``(B) Swimming pool, etc., used as storage medium; 
                solar panels.--For purposes of this paragraph, the 
                provisions of subparagraphs (D) and (E) section 
                199(d)(1) shall apply.
                    ``(C) Required standards.--Property described under 
                subparagraph (A) shall meet the performance and quality 
                standards and certification standards of paragraphs 
                (1)(D) and (2) of section 199(c).
            ``(3) Energy-efficient building property.--The term 
        `energy-efficient building property' has the same meaning given 
        the terms `Tier 2 energy-efficient property' and `Tier 1 
        energy-efficient property' in paragraphs (2) and (3) of section 
        199(d), respectively.
            ``(4) Solar hot water property.--The term `solar hot water 
        property' means property which, when installed in connection 
        with a structure, uses solar energy for the purpose of 
        providing hot water for use within such structure.
            ``(5) Photovoltaic property.--The term `photovoltaic 
        property' has the same meaning given such term in section 
        199(d)(1)(C).
            ``(6) Residence.--For purposes of paragraph (1)(B)--
                    ``(A) In general.--The term `residence' has the 
                same meaning as when the term `principal residence' is 
                used in section 121, except no ownership requirement 
                shall be imposed.
                    ``(B) Manufactured housing.--The term `residence' 
                shall include a dwelling unit which is manufactured 
                housing.
            ``(7) Highly energy-efficient principal residence.--
                    ``(A) In general.--Property is a highly energy-
                efficient principal residence if--
                            ``(i) such property is located in the 
                        United States,
                            ``(ii) the use of such property commences 
                        with the taxpayer and is, at the time of such 
                        use, the principal residence of the taxpayer, 
                        and
                            ``(iii) such property is certified before 
                        such use commences as being 50 percent property 
                        or 30 percent property.
                    ``(B) 50 or 30 percent property.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A), property is 50 percent 
                        property or 30 percent property if the 
                        projected heating and cooling energy usage of 
                        such property, measured in terms of average 
                        annual energy cost to taxpayer, is reduced by 
                        50 percent, or 30 percent, respectively, in 
                        comparison to the energy usage of the standard 
                        design reference house as determined using the 
                        procedures under clause (iv).
                            ``(ii) Standard design reference house.--
                        For purposes of this paragraph, 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 pro- mulgated by the Department of 
Energy under the National Appliance Energy Conservation Act.
                            ``(iii) 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 
                        heating fuel type as the proposed design and 
                        which uses minimum standards equipment, as 
                        required 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 clause 
                        (iv).
                            ``(iv) Procedures.--
                                    ``(I) In general.--For purposes of 
                                clause (i), energy usage shall be 
                                demonstrated either by a component-
                                based approach or a performance-based 
                                approach.
                                    ``(II) Component approach.--
                                Compliance by the component approach is 
                                achieved when all of the components of 
                                the house comply with the requirements 
                                of prescriptive packages established by 
                                the Secretary of Energy, in 
                                consultation with the Administrator of 
                                the Environmental Protection Agency, 
                                such that they are equivalent, for the 
                                strong majority of houses which can use 
                                this method, to the results of using 
                                the performance-based approach of 
                                subclause (III) to achieve the required 
                                reduction in energy usage.
                                    ``(III) Performance-based 
                                approach.--Performance-based compliance 
                                shall be demonstrated in terms of 
                                equivalent or less energy usage when 
                                compared to the energy efficient 
                                reference house of the same heating 
                                fuel type as the taxpayer's house or 
                                through an alternate method prescribed 
                                by the Secretary which yields 
                                equivalent results.
                                    ``(IV) Computer software.--Computer 
                                software shall be used in support of 
                                performance-based compliance under 
                                subclause (III) and such software shall 
                                meet all of the procedures and methods 
                                for calculating energy savings 
                                reductions that are promulgated by the 
                                Secretary of Energy. Such regulations 
                                on the specifications for software and 
                                verification protocols shall be based 
                                on the 1998 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 such approach, the 
                                Secretary shall assure fuel parity by 
                                requiring both the energy efficient 
                                reference house and the prescriptive 
                                package under subclause (II) to employ 
                                the same envelope energy efficiency 
                                measures for a house heated 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 efficiency 
                                improvement. Such determination of 
                                corresponding efficiency improvement 
                                shall be made on a linear scale between 
                                the minimum standard equipment 
                                efficiency and the best available 
                                marketplace technology efficiency as 
                                determined by the Secretary 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 heating and cooling).
                                    ``(VI) Approval of software 
                                submissions.--The Secretary shall 
                                approve software submissions that 
                                comply with the calculation 
                                requirements of subclause (IV).
                                    ``(VII) Procedures for inspection 
                                and testing of homes.--The Secretary 
                                shall ensure that procedures for the 
                                inspection and testing for compliance 
                                comply with the calculation 
                                requirements under subclause (IV).
                    ``(C) Determinations of compliance.--A 
                determination of compliance made for the purposes of 
                this paragraph shall be filed with the Secretary within 
                1 year of the date of such determination and shall 
                include the TIN of the certifier, the address of the 
                building in compliance, and the identity of the person 
                for whom such determination was performed. 
                Determinations of compliance filed with the Secretary 
                shall be available for inspection by the Secretary of 
                Energy.
                    ``(D) Compliance.--
                            ``(i) In general.--The Secretary, in 
                        consultation with the Secretary of Energy shall 
                        establish requirements for certification and 
                        compliance procedures after examining the 
                        requirements for energy consultants and home 
                        energy ratings providers specified by the 
                        Mortgage Industry National Accreditation 
                        Procedures for Home Energy Rating Systems.
                            ``(ii) Individuals qualified to determine 
                        compliance.--Individuals qualified to determine 
                        compliance shall be only those individuals who 
                        are recognized by an organization certified by 
                        the Secretary for such purposes. The Secretary 
                        may qualify a Home 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.
                    ``(E) Principal residence.--For purposes of this 
                paragraph--
                            ``(i) In general.--The term `principal 
                        residence' has the same meaning as when used in 
                        section 121, except that the period for which a 
                        building is treated as the principal residence 
                        of the taxpayer shall also include the 60-day 
                        period ending on the 1st day on which it would 
                        (but for this subparagraph) first be treated as 
                        a principal residence.
                            ``(ii) Manufactured housing.--The term 
                        `residence' shall include a dwelling unit which 
                        is manufactured housing.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Dollar amounts in case of joint occupancy.--In the 
        case of any dwelling unit which if jointly occupied and used 
        during any calendar year as a residence by 2 or more 
        individuals the following rules shall apply:
                    ``(A) The amount of the credit allowable under 
                subsection (a) by reason of expenditures made during 
                such calendar year by any of such individuals with 
                respect 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 individuals, a credit 
                under subsection (a) for the taxable year in which such 
                calendar year ends in an amount which bears the same 
                ratio to the amount 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 individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having made his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of any expenditures of such corporation and such 
        credit shall be allocated pro rata to such individual.
            ``(3) Condominiums.--
                    ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which he owns, such 
                individual shall be treated as having made his 
                proportionate share of any expenditures of such 
                association and any credit shall be allocated 
                appropriately.
                    ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as residences.
            ``(4) Joint ownership of energy items.--
                    ``(A) In general.--Any expenditure otherwise 
                qualifying as a residential energy property expenditure 
                shall not be treated as failing to so qualify merely 
                because such expenditure was made with respect to 2 or 
                more dwelling units.
                    ``(B) Limits applied separately.--In the case of 
                any expenditure described in subparagraph (A), the 
                amount of the credit allowable under subsection (a) 
                shall (subject to paragraph (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 nonbusiness purposes, only that 
        portion of the expenditures for such item which is properly 
        allocable to use for nonbusiness 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 nonbusiness 
        purposes.
            ``(6) Coordination with other credits.--Property 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.
            ``(7) 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 of a structure, such expenditure shall be 
                treated as made when the original use of the 
                constructed structure by the taxpayer begins.
            ``(8) Property financed by subsidized energy financing.--
                    ``(A) Reduction of expenditures.--
                            ``(i) In general.--Except as provided in 
                        subparagraph (C), for purposes of determining 
                        the amount of residential energy property 
                        expenditures made by any individual with 
                        respect to any dwelling unit, there shall not 
                        be taken into account expenditures which are 
                        made from subsidized energy financing.
                            ``(ii) Subsidized energy financing.--For 
                        purposes of clause (i), the term `subsidized 
                        energy financing' has the same meaning given 
                        such term in section 48(a)(4)(C).
                    ``(B) Dollar limits reduced.--The dollar amounts in 
                the table contained in subsection (b)(1) with respect 
                to each property purchased for such dwelling unit for 
                any taxable year of such taxpayer shall be reduced 
                proportionately by an amount equal to the sum of--
                            ``(i) the amount of the expenditures made 
                        by the taxpayer during such taxable year with 
                        respect to such dwelling unit and not taken 
                        into account by reason of subparagraph (A), and
                            ``(ii) the amount of any Federal, State, or 
                        local grant received by the taxpayer during 
                        such taxable year which is used to make 
                        residential energy property expenditures with 
                        respect to the dwelling unit and is not 
                        included in the gross income of such taxpayer.
                    ``(C) Exception for state programs.--Subparagraphs 
                (A) and (B) shall not apply to expenditures made with 
                respect to property for which the taxpayer has received 
                a loan, State tax credit, or grant under any State 
                energy program.
    ``(e) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(f) Regulations.--The Secretary shall promulgate such regulations 
as necessary to take into account new technologies regarding energy 
efficiency and renewable energy for purposes of determining energy 
efficiency and savings under this section.
    ``(g) Termination.--
            ``(1) In general.--Except as provided in paragraph (2), 
        this section shall not apply with respect to taxable years 
        beginning after December 31, 2007.
            ``(2) Tier 1 energy-efficient property.--This section shall 
        not apply with respect to expenditures for tier 1 energy-
        efficient property in taxable years beginning after December 
        31, 2005.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016 of the Internal Revenue 
        Code of 1986 as amended by section 3(b)(3), is amended by 
        striking ``and'' at the end of paragraph (27), by striking the 
        period at the end of paragraph (28) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(29) to the extent provided in section 25B(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25B.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 25A the following new item:

                              ``Sec. 25B. Nonbusiness energy 
                                        property.''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to expenditures 
        made after December 31, 2000.
            (2) Energy efficient building property used in a principal 
        residence.--In the case of energy efficient building property, 
        as defined in section 25B(c) of the Internal Revenue Code of 
        1986, as added by subsection (a), the amendments made by this 
        section shall apply to expenditures made after September 30, 
        2001.
                                 <all>