[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 507 Introduced in Senate (IS)]







108th CONGRESS
  1st Session
                                 S. 507

  To amend the Internal Revenue Code of 1986 to provide incentives to 
 introduce new technologies to reduce energy consumption in buildings.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 4, 2003

  Ms. Snowe (for herself, Mrs. Feinstein, Mr. McCain, Mr. Kerry, Mr. 
  Smith, and Mr. Reid) 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 incentives to 
 introduce new technologies to reduce energy consumption in buildings.

    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 ``Efficient Energy through Certified 
Technologies (EFFECT) Act of 2003''.

SEC. 2. 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,
            ``(2) the energy efficient commercial building property 
        deduction determined under subsection (e), and
            ``(3) the energy efficient residential rental building 
        property deduction 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.
Advanced main air circulating fan.      $150.
Tier 2 energy-efficient building        $900.
 property.
Tier 1 energy-efficient building        $450.
 property (other than an advanced
 main air circulating fan.
------------------------------------------------------------------------

            ``(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) for central air conditioners and 
                        electric heat pumps--
                                    ``(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,
                            ``(iii) in the case of geothermal heat 
                        pumps--
                                    ``(I) shall be based on testing 
                                under the conditions of ARI/ISO 
                                Standard 13256-1 for Water Source Heat 
                                Pumps or ARI 870 for Direct GeoExchange 
                                Heat Pumps (DX), as appropriate, and
                                    ``(II) shall include evidence that 
                                water heating services have been 
                                provided through a desuperheater or 
                                integrated water heating system 
                                connected to the storage water heater 
                                tank, and
                            ``(iv) 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 which 
                yields an energy factor of at least 2.0 in the standard 
                Department of Energy test procedure,
                    ``(B) an electric heat pump which has a heating 
                seasonal performance factor (HSPF) of at least 9, a 
                seasonal energy efficiency ratio (SEER) of at least 15, 
                and an energy efficiency ratio (EER) of at least 12.5,
                    ``(C) a geothermal heat pump which--
                            ``(i) in the case of a closed loop product, 
                        has an energy efficiency ratio (EER) of at 
                        least 14.1 and a heating coefficient of 
                        performance (COP) of at least 3.3,
                            ``(ii) in the case of an open loop product, 
                        has an energy efficiency ratio (EER) of at 
                        least 16.2 and a heating coefficient of 
                        performance (COP) of at least 3.6, and
                            ``(iii) in the case of a direct expansion 
                        (DX) product, has an energy efficiency ratio 
                        (EER) of at least 15 and a heating coefficient 
                        of performance (COP) of at least 3.5,
                    ``(D) a central air conditioner which has a 
                seasonal energy efficiency ratio (SEER) of at least 15 
                and an energy efficiency ratio (EER) of at least 12.5, 
                and
                    ``(E) a natural gas, propane, or oil water heater 
                which 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 which has a heating 
                system performance factor (HSPF) of at least 7.5, a 
                cooling seasonal energy efficiency ratio (SEER) of at 
                least 13.5, and an energy efficiency ratio (EER) of at 
                least 11.5,
                    ``(B) a central air conditioner which has a cooling 
                seasonal energy efficiency ratio (SEER) of at least 
                13.5 and an energy efficiency ratio (EER) of at least 
                11.5,
                    ``(C) a natural gas, propane, or oil water heater 
                which has an energy factor of at least 0.65, and
                    ``(D) an oil, natural gas, or propane furnace or 
                hot water boiler which achieves at least 95 percent 
                annual fuel utilization efficiency (AFUE).
            ``(4) Advanced main air circulating fan.--The term 
        `advanced main air circulating fan' means a fan used in a 
        natural gas, propane, or oil furnace originally placed in 
        service by the taxpayer during the taxable year, including a 
        fan which uses a brushless permanent magnet motor or another 
        type of motor which achieves similar or higher efficiency at 
        full and half speed, as determined by the Secretary.
    ``(e) 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.--Except as 
                otherwise provided in this subsection, 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, reconstruction, or erection 
                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, reconstruction, or erection of property--
                    ``(A) for which depreciation is allowable under 
                section 167,
                    ``(B) which is located in the United States, and
                    ``(C) the construction, reconstruction, 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 ASHRAE 
        Standard 90.1-2001 (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 building 
                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 at least 50 percent in comparison to a 
                reference building which meets the requirements of 
                ASHRAE Standard 90.1-2001 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, based on the provisions of the 
                2001 California Nonresidential Alternative Calculation 
                Method Approval Manual or, in the case of residential 
                property, the 2001 California Residential Alternative 
                Calculation Method Approval Manual. These regulations 
                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. If a State has 
                        developed annual energy usage and cost 
                        reduction procedures based on time of usage 
                        costs for use in the performance standards of 
                        the State's building energy code before the 
                        effective date of this section, the State may 
                        use those annual energy usage and cost 
                        reduction procedures in lieu of those adopted 
                        by the Secretary.
                            ``(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 1 of the following shall 
                        apply:
                                    ``(I) The expenditures 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 
                                ASHRAE Standard 90.1-2001.
                                    ``(III) The expenditures taken into 
                                account under paragraph (1) shall be a 
                                fraction of such expenditures based on 
                                the energy cost savings performance of 
                                less than all energy-using systems in 
                                accordance with clause (iii) and shall 
                                be limited to  $0.75 per square foot 
for each of the energy-using systems.
                            ``(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, and the limitation under 
                        paragraph (2), shall be allocated to the 
                        appropriate building subsystem based on a 
                        demonstration of compliance with system-
                        specific energy cost savings targets 
                        established 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 ASHRAE Standard 90.1-2001.
                            ``(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 ASHRAE 
                        Standard 90.1-2001 or in the 2001 California 
                        Nonresidential Alternative Calculation Method 
                        Approval 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 which 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 which exceeds 
                                typical performance.
                                    ``(IX) On-site generation of 
                                electricity, including combined heat 
                                and power systems, fuel cells, and 
                                renewable energy generation such as 
                                solar energy.
                    ``(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 documents 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 taxpayer 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 shall prescribe procedures for 
                the inspection and testing for compliance of buildings 
                which are comparable, given the difference between 
                commercial and residential buildings, to the 
                requirements in the Mortgage Industry National 
                Accreditation Procedures for Home Energy Rating 
                Systems.
                    ``(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. The Secretary may qualify 
                a Home Ratings Systems Organization, a local building 
                code agency, a State or local energy office, a utility, 
                or any other organization which meets the requirements 
                prescribed under this section.
                    ``(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.
    ``(f) Energy Efficient Residential Rental Building Property 
Deduction.--
            ``(1) Deduction allowed.--For purposes of subsection (a)--
                    ``(A) In general.--The energy efficient residential 
                rental building property deduction determined under 
                this subsection is an amount equal to energy efficient 
                residential rental building property expenditures made 
                by a taxpayer for the taxable year.
                    ``(B) Maximum amount of deduction.--The amount of 
                energy efficient residential rental building property 
                expenditures taken into account under subparagraph (A) 
                with respect to each dwelling unit shall not exceed the 
                amount specified in the following table:

                                                              Deduction
``In the case of:                                               amount:
    30-percent property...........................                $600 
    50-percent property...........................              $1,500.
                    ``(C) Year deduction allowed.--The deduction under 
                subparagraph (A) shall be allowed in the taxable year 
                in which the construction, reconstruction, erection, or 
                rehabilitation of the property is completed.
            ``(2) Energy efficient residential rental building property 
        expenditures.--For purposes of this subsection--
                    ``(A) In general.--The term `energy efficient 
                residential rental building property expenditures' 
                means an amount paid or incurred in connection with 
                construction, reconstruction, erection, or 
                rehabilitation of energy efficient residential rental 
                building property--
                            ``(i) for which depreciation is allowable 
                        under section 167,
                            ``(ii) which is located in the United 
                        States, and
                            ``(iii) the construction, reconstruction, 
                        erection, or rehabilitation of which is 
                        completed by the taxpayer.
                Such term includes expenditures for labor costs 
                properly allocable to the onsite preparation, assembly, 
                or original installation of the property.
                    ``(B) Energy efficient residential rental building 
                property.--
                            ``(i) In general.--The term `energy 
                        efficient residential rental building property' 
                        means any property which reduces total annual 
                        energy and power costs with respect to heating 
                        and cooling of the building by at least 50 
                        percent in the case of 50-percent property or 
                        at least 30 percent in the case of 30-percent 
                        property in comparison to the projected energy 
                        cost of such property without such 
                        expenditures. Such comparison shall be made 
                        using the procedures under clause (ii).
                            ``(ii) Procedures.--
                                    ``(I) In general.--For purposes of 
                                clause (i), energy usage and costs 
                                shall be demonstrated either by 
                                component-based compliance or 
                                performance-based compliance.
                                    ``(II) Component-based 
                                compliance.--Component-based compliance 
                                shall be demonstrated if all of the 
                                components of the dwelling unit 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 the 
                                buildings which use such approach 
                                achieve energy cost reductions 
                                equivalent to the results of using 
                                performance-based compliance under 
                                subclause (III).
                                    ``(III) Performance-based 
                                compliance.--Performance-based 
                                compliance shall be demonstrated if the 
                                30 percent or 50 percent energy cost 
                                savings for heating and cooling, as 
                                applicable, are met with respect to a 
                                dwelling unit when compared to the 
                                original condition of the dwelling 
                                unit.
                                    ``(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 which are promulgated by the 
                                Secretary of Energy. Such regulations 
                                on the specifications for software and 
                                verification protocols shall be based 
                                on the 2001 California Residential 
                                Alternative Calculation Method Approval 
                                Manual.
                                    ``(V) Calculation requirements.--In 
                                calculating tradeoffs and energy 
                                performance, the regulations prescribed 
                                under this clause shall prescribe for 
                                the taxable year 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. 
                                Where a State has developed annual 
                                energy usage and cost reduction 
                                procedures based on time of usage costs 
                                for use in the performance standards of 
                                the State's building energy code prior 
                                to the effective date of this section, 
                                the State may use those annual energy 
                                usage and cost reduction procedures in 
                                lieu of those adopted by the Secretary.
                                    ``(VI) Approval of software 
                                submissions.--The Secretary shall 
                                approve software submissions which 
                                comply with the 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) of 
                                this clause and clause (iv).
                            ``(iii) Determinations of compliance.--A 
                        determination of compliance with respect to 
                        energy efficient residential rental building 
                        property made for the purposes of this 
                        subparagraph shall be filed with the Secretary 
                        not later than 1 year after 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.
                            ``(iv) 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 Home 
                                Energy Rating Standards.
                                    ``(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 any other 
                                organization which meets the 
                                requirements prescribed under this 
                                subsection.
                    ``(C) Allocation of deduction for public 
                property.--In the case of energy efficient residential 
                rental building property which is public property, the 
                Secretary shall promulgate a regulation to allow the 
                allocation of the deduction to the person primarily 
                responsible for designing the improvements to the 
                property in lieu of the public entity which is the 
                owner of such property. Such person shall be treated as 
                the taxpayer for purposes of this subsection.
    ``(g) 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 
        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.
    ``(h) 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.
    ``(i) Termination.--This section shall not apply with respect to--
            ``(1) any energy property placed in service after December 
        31, 2008 (December 31, 2005, in the case of Tier I energy-
        efficient building property),
            ``(2) any energy efficient commercial building property 
        expenditures in connection with property--
                    ``(A) the plans for which are not certified under 
                subsection (e)(6) on or before December 31, 2008, and
                    ``(B) the construction, reconstruction, or erection 
                of which is not completed on or before December 31, 
                2010, and
            ``(3) any energy efficient residential rental building 
        property expenditures in connection with property--
                    ``(A) placed in service after December 31, 2008, or
                    ``(B) the construction, reconstruction, erection, 
                or rehabilitation of which is not completed on or 
                before December 31, 2008.''.
    (b) Conforming Amendments.--
            (1) Section 48(a)(3)(A) of the Internal Revenue Code of 
        1986 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 (27), by striking the period at 
        the end of paragraph (28) and inserting ``, and'', and by 
        inserting the following new paragraph:
            ``(29) 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 the Internal Revenue Code of 1986 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 Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 3. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOME.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to business related 
credits) is amended by adding at the end the following new section:

``SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor, the credit determined under this section for the 
taxable year is an amount equal to the aggregate adjusted bases of all 
energy efficient property installed in a qualifying new home during 
construction of such home.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by this 
                section with respect to a qualifying new home shall not 
                exceed--
                            ``(i) in the case of a 30-percent home, 
                        $600, and
                            ``(ii) in the case of a 50-percent home, 
                        $2,000.
                    ``(B) 30- or 50-percent home.--For purposes of 
                subparagraph (A)--
                            ``(i) 30-percent home.--The term `30-
                        percent home' means a qualifying new home which 
                        is certified to have a projected level of 
                        annual heating and cooling energy consumption, 
                        measured in terms of average annual energy cost 
                        to the homeowner, which is at least 30 percent 
                        less than the annual level of heating and 
                        cooling energy consumption of the standard 
                        design reference home.
                            ``(ii) 50-percent home.--The term `50-
                        percent home' means a qualifying new home which 
                        is certified to have a projected level of 
                        annual heating and cooling energy consumption, 
                        measured in terms of average annual energy cost 
                        to the homeowner, which is at least 50 percent 
                        less than the annual level of heating and 
                        cooling energy consumption of the standard 
                        design reference home.
                    ``(C) Prior credit amounts on same home taken into 
                account.--If a credit was allowed under subsection (a) 
                with respect to a qualifying new home in 1 or more 
                prior taxable years, the amount of the credit otherwise 
                allowable for the taxable year with respect to such 
                home shall not exceed the amount under clause (i) or 
                (ii) of subparagraph (A) (as the case may be), reduced 
                by the sum of the credits allowed under subsection (a) 
                with respect to the home for all prior taxable years.
            ``(2) Coordination with rehabilitation and energy 
        credits.--For purposes of this section--
                    ``(A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion of the 
                basis of any property which is attributable to the 
                rehabilitation credit (as determined under section 
                47(a)) or to the energy percentage of energy property 
                (as determined under section 48(a)), and
                    ``(B) expenditures taken into account under either 
                section 47 or 48(a) shall not be taken into account 
                under this section.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible contractor.--The term `eligible contractor' 
        means the person who constructed the qualifying new home, or in 
        the case of a manufactured home which conforms to Federal 
        Manufactured Home Construction and Safety Standards (24 C.F.R. 
        3280), the manufactured home producer of such home.
            ``(2) Energy efficient property.--
                    ``(A) In general.--The term `energy efficient 
                property' means any energy efficient building envelope 
                component, and any energy efficient heating or cooling 
                equipment, and any other materials and systems which 
                are specifically designed to reduce heat loss or gain 
                or the heating or cooling energy use of a dwelling, 
                which can, individually or in combination with other 
                components, meet the requirements of this section.
                    ``(B) Building envelope component.--The term 
                `building envelope component' means--
                            ``(i) any insulation material or system 
                        which is specifically and primarily designed to 
                        reduce the heat loss or gain of a qualifying 
                        new home when installed in or on such home, and
                            ``(ii) exterior windows (including 
                        skylights) and doors.
            ``(3) Qualifying new home.--The term `qualifying new home' 
        means a dwelling--
                    ``(A) located in the United States,
                    ``(B) the construction of which is substantially 
                completed after the date of the enactment of this 
                section, and
                    ``(C) the first use of which after construction is 
                as a principal residence (within the meaning of section 
                121, determined without regard to ownership).
            ``(4) Standard design reference home.--The term `standard 
        design reference home' means a dwelling which conforms with the 
        standards of chapter 4 of the 2000 International Energy 
        Conservation Code of the International Code Council and the 
        minimum equipment efficiency standards promulgated by the 
        Department of Energy under the National Appliance Energy 
        Conservation Act.
            ``(5) Energy efficient reference home.--The term `energy 
        efficient reference home' means a design of a dwelling which 
        uses the same heating fuel type as the proposed design, as 
        required by the Department of Energy under the National 
        Appliance Energy Conservation Act and which achieves, on 
        average over fuel type and home geometry, the required 30 
        percent or 50 percent reductions in annual energy cost as 
        calculated using the procedures under subsection (d)(1)(C)(i).
            ``(6) Construction.--The term `construction' includes 
        reconstruction, erection, and rehabilitation.
            ``(7) Manufactured home included.--The term `qualifying new 
        home' includes a manufactured home conforming to Federal 
        Manufactured Home Construction and Safety Standards (24 C.F.R. 
        3280).
    ``(d) Certification.--
            ``(1) Method of certification.--
                    ``(A) In general.--A certification described in 
                subsection (b)(1)(B) shall be determined either by a 
                component-based method or a performance-based method.
                    ``(B) Component-based method.--A component-based 
                method is a method in which compliance is achieved when 
                all of the components of the home comply with the 
                requirements of prescriptive packages using the 
                applicable technical energy efficiency specifications 
                or ratings (including product labeling requirements) 
                for the energy efficient building envelope component or 
                energy efficient heating or cooling equipment. The 
                Secretary shall, in consultation with the Administrator 
                of the Environmental Protection Agency, develop 
                prescriptive component-based packages which are 
                equivalent in energy performance (when modeled with 50 
                percent of the windows of such packages facing west, 25 
                percent facing east, 12.5 percent facing south, and 
                12.5 percent facing north) to properties which qualify 
                under subparagraph (C).
                    ``(C) Performance-based method.--
                            ``(i) In general.--A performance-based 
                        method is a method which calculates projected 
                        energy usage and cost reductions in the 
                        qualifying new home in relation to an energy 
                        efficient reference home--
                                    ``(I) heated by the same fuel type, 
                                and
                                    ``(II) constructed in accordance 
                                with the requirements for the 
                                applicable 30 percent or 50 percent 
                                energy efficient reference home.
                            ``(ii) Computer software.--
                                    ``(I) In general.--Computer 
                                software shall be used in support of a 
                                performance-based method certification 
                                under clause (i). Such software shall 
                                meet procedures and methods for 
                                calculating energy and cost savings in 
                                regulations promulgated by the 
                                Secretary of Energy. Such regulations 
                                on the specifications for software and 
                                verification protocols shall be based 
                                on the 2001 California Residential 
                                Alternative Calculation Method Approval 
                                Manual.
                                    ``(II) Approval of software 
                                submissions.--The Secretary shall 
                                approve software submissions which 
                                comply with the calculation 
                                requirements of subclause (I).
                            ``(iii) 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 this section.
            ``(2) Provider.--A certification described in subsection 
        (b)(1)(B) shall be provided by an individual recognized by an 
        organization designated by the Secretary for such purposes.
            ``(3) Form.--
                    ``(A) In general.--A certification described in 
                subsection (b)(1)(B) shall be made in writing in a 
                manner that specifies in readily verifiable fashion the 
                energy efficient building envelope components and 
                energy efficient heating or cooling equipment installed 
                and their respective rated energy efficiency 
                performance, and in the case of a performance-based 
                method, accompanied by a written analysis documenting 
                the proper application of a permissible energy 
                performance calculation method to the specific 
                circumstances of the qualifying new home.
                    ``(B) Form provided to buyer.--A form documenting 
                the energy efficient building envelope components and 
                energy efficient heating or cooling equipment installed 
                and their rated energy efficiency performance shall be 
                provided to the buyer of the qualifying new home. The 
                form shall include labeled R-value for insulation 
                products, NFRC-labeled U-factor and Solar Heat Gain 
                Coefficient for windows, skylights, and doors, labeled 
                AFUE ratings for furnaces and boilers, labeled HSPF 
                ratings for electric heat pumps, and labeled SEER 
                ratings for air conditioners.
                    ``(C) Ratings label affixed in dwelling.--A 
                permanent label documenting the ratings in subparagraph 
                (B) shall be affixed to the front of the electrical 
                distribution panel of the qualifying new home, or shall 
                be otherwise permanently displayed in a readily 
                inspectable location in such home.
            ``(4) Regulations.--
                    ``(A) In general.--In prescribing regulations under 
                this subsection for performance-based certification 
                methods, the Secretary, after examining the 
                requirements of the 2001 California Residential 
                Alternative Calculation Method Approval Manual, shall 
                prescribe procedures for calculating annual energy 
                usage and cost reductions for heating and cooling and 
                for the reporting of the results. Such regulations 
                shall--
                            ``(i) provide for fuel parity in the case 
                        of both the component-based and the 
                        performance-based approaches, and any software 
                        used in support of either such approach,
                            ``(ii) require that any computer software 
                        allow for the printing of the Federal tax forms 
                        necessary for the credit under this section and 
                        for the printing of forms for disclosure to the 
                        homebuyer, and
                            ``(iii) establish 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, dependent on time of usage.
                    ``(B) Fuel parity.--For purposes of subparagraph 
                (A)(i), the Secretary shall assure fuel parity by 
                requiring both the energy efficient reference home and 
                the prescriptive package under paragraph (1) to employ 
                the same envelope energy efficiency measures for a home 
                heated by a gas furnace as for a home 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 based upon 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). For homes heated electrically, the baseline 
                of the linear scale shall be the latest NAECA minimum 
                efficiency required for air-source heat pumps. For 
                homes heated by direct combustion fossil fuels, the 
                baseline of the linear scale shall be the latest NAECA 
                minimum efficiency for furnaces.
                    ``(C) Time of usage.--For purposes of subparagraph 
                (A)(iii), time of usage costs shall be determined based 
                on regional or State utility and fuel costs. Where a 
                State has developed annual energy usage and cost 
                reduction procedures based on time of usage costs for 
                use in the performance standards of the State's 
                building energy code prior to the effective date of 
                this section, the State may use those annual energy 
                usage and cost reduction procedures in lieu of those 
                adopted by the Secretary.
                    ``(D) Providers.--For purposes of paragraph (2), 
                the Secretary shall establish requirements for the 
                designation of individuals based on the requirements 
                for energy consultants and home energy raters specified 
                by the Mortgage Industry National Home Energy Rating 
                Standards. The Secretary shall qualify an independent 
                home energy rating system organization, a local 
                building code agency, a State or local energy office, a 
                utility, a manufactured home production inspection 
                agency (IPIA), or any other organization which meets 
                the requirements prescribed under this section.
                    ``(E) Determinations of compliance.--A 
                determination of compliance with respect to energy 
                efficient property made for the purposes of this 
                subsection shall be filed with the Secretary not later 
                than 1 year after 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.
    ``(e) Termination.--Subsection (a) shall apply to qualifying new 
homes purchased during the period beginning on the date of the 
enactment of this section and ending on December 31, 2005, for 30-
percent homes and December 31, 2008, for 50-percent homes.''.
    (b) Credit Made Part of General Business Credit.--Section 38(b) of 
the Internal Revenue Code of 1986 (relating to current year business 
credit) is amended by striking ``plus'' at the end of paragraph (14), 
by striking the period at the end of paragraph (15) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
            ``(16) the new energy efficient home credit determined 
        under section 45G(a).''.
    (c) Denial of Double Benefit.--Section 280C of the Internal Revenue 
Code of 1986 (relating to certain expenses for which credits are 
allowable) is amended by adding at the end the following new 
subsection:
    ``(d) New Energy Efficient Home Expenses.--No deduction shall be 
allowed for that portion of expenses for a qualifying new home 
otherwise allowable as a deduction for the taxable year which is equal 
to the amount of the credit determined for such taxable year under 
section 45G(a).''.
    (d) Limitation on Carryback.--Section 39(d) of the Internal Revenue 
Code of 1986 (relating to transitional rules) is amended by adding at 
the end the following new paragraph:
            ``(11) No carryback of new energy efficient home credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the credit 
        determined under section 45G may be carried back to any taxable 
        year ending on or before the date of the enactment of section 
        45G.''.
    (e) Deduction for Certain Unused Business Credits.--Section 196(c) 
of the Internal Revenue Code of 1986 (defining qualified business 
credit) is amended by striking ``and'' at the end of paragraph (9), by 
striking the period at the end of paragraph (10) and inserting ``, 
and'', and by adding at the end the following new paragraph:
            ``(11) the new energy efficient home credit determined 
        under section 45G(a).''.
    (f) Clerical Amendment.--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 adding at the end the following new item:

                              ``Sec. 45G. New energy efficient home 
                                        credit.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

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 25B the 
following new section:

``SEC. 25C. 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) so much of the credit amount specified in the 
        following table which does not exceed the expenditures made by 
        the taxpayer in connection with the construction, 
        reconstruction, erection, or rehabilitation of a dwelling unit 
        of the taxpayer which results in the unit being a highly 
        energy-efficient principal residence:

``Highly energy-efficient principal                      Credit amount:
        residence:
        30-percent property....................................   $200 
        50-percent property....................................   $500.
For purposes of paragraph (2), the expenditures may include labor costs 
properly allocable to the onsite preparation, assembly, or original 
installation of such property.
    ``(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 (as defined in 
                section 199(d)(1)(B)), 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         $300.
 property.
Advanced main air circulating fan.        $50.
Tier 1 energy-efficient building         $150.
 property (other than an advanced
 main air circulating fan).
Solar hot water property..........      $1,000.
Photovoltaic property.............      $6,000.
------------------------------------------------------------------------

    ``(c) Definitions and Special Rules.--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 as a principal 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', `Tier 1 energy-
        efficient property', and `advanced main air circulating fan' in 
        paragraphs (2), (3), and (4) 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 and the 
        performance of which is determined in accordance with section 
        199(c)(2)(A).
            ``(5) Photovoltaic property.--The term `photovoltaic 
        property' has the same meaning given such term in section 
        199(d)(1)(C).
            ``(6) 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 property is used as a principal 
                        residence, and
                            ``(iii) such property is certified as being 
                        50-percent property or 30-percent property.
                    ``(B) Principal residence.--
                            ``(i) In general.--The term `principal 
                        residence' has the same meaning as when used in 
                        section 121, except that--
                                    ``(I) no ownership requirement 
                                shall be imposed, and
                                    ``(II) the period for which a 
                                building is treated as used as a 
                                principal residence shall also include 
                                the 60-day period ending on the 1st day 
                                on which it would (but for this 
                                subparagraph) first be treated as used 
                                as a principal residence.
                            ``(ii) Manufactured housing.--The term 
                        `residence' shall include a dwelling unit which 
                        is a manufactured home conforming to Federal 
                        Manufactured Home Construction and Safety 
                        Standards (24 C.F.R. 3280).
                    ``(C) 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 cost of such property 
                        if expenditures made by the taxpayer with 
                        respect to energy efficient improvements to 
                        such property were not made. Such comparison 
                        shall be determined using the procedures under 
                        clause (ii).
                            ``(ii) Procedures.--
                                    ``(I) In general.--For purposes of 
                                clause (i), energy usage shall be 
                                demonstrated either by component-based 
                                compliance or performance-based 
                                compliance.
                                    ``(II) Component-based 
                                compliance.--Component-based compliance 
                                shall be demonstrated if all of the 
                                components of the dwelling unit 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 the 
                                buildings which use this method achieve 
                                energy cost reductions equivalent to 
                                the results using the performance-based 
                                compliance method under subclause 
                                (III).
                                    ``(III) Performance-based 
                                compliance.--Performance-based 
                                compliance shall be demonstrated if the 
                                30 percent or the 50 percent energy 
                                cost savings for heating and cooling, 
                                as applicable, are met with respect to 
                                a dwelling unit when compared to the 
                                original condition of the dwelling 
                                unit.
                                    ``(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 which are promulgated by the 
                                Secretary of Energy. Such regulations 
                                on the specifications for software and 
                                verification protocols shall be based 
                                on the 2001 California Residential 
                                Alternative Calculation Method Approval 
                                Manual.
                                    ``(V) Calculation requirements.--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. If a 
                                State has developed annual energy usage 
                                and cost reduction procedures based on 
                                time of usage costs for use in the 
                                performance standards of the State's 
                                building energy code before the 
                                effective date of this section, the 
                                State may use those annual energy usage 
                                and cost reduction procedures in lieu 
                                of those adopted by the Secretary.
                                    ``(VI) Approval of software 
                                submissions.--The Secretary shall 
                                approve software submissions which 
                                comply with the calculation 
                                requirements of subclause (IV).
                                    ``(VII) Procedures for inspection 
                                and testing of dwelling units.--The 
                                Secretary shall ensure that procedures 
                                for the inspection and testing for 
                                compliance comply with the calculation 
                                requirements under subclause (IV) and 
                                subsection (d)(2).
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Determinations of compliance.--A determination of 
        compliance made for the purposes of this section 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.
            ``(2) Compliance.--
                    ``(A) 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 Home Energy Rating 
                Standards.
                    ``(B) 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 any other organization which meets the 
                requirements prescribed under this section.
            ``(3) 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 principal 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.
            ``(4) 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.
            ``(5) 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 principal residences.
            ``(6) Joint ownership of energy items.--
                    ``(A) In general.--Any expenditure otherwise 
                qualifying as an expenditure under this section 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.
            ``(7) 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.
            ``(8) 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.
            ``(9) Year credit allowed.--The credit under subsection 
        (a)(2) shall be allowed in the taxable year in which the 
        principal residence is certified as 50-percent property or 30-
        percent property.
            ``(10) 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.
            ``(11) 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 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)(3) 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 any taxable years 
        beginning after December 31, 2008.
            ``(2) Tier 1 energy-efficient building property 
        expenditures.--This section shall not apply to expenditures for 
        tier 1 energy-efficient building 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 1(b)(3), is amended by 
        striking ``and'' at the end of paragraph (28), by striking the 
        period at the end of paragraph (29) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(30) to the extent provided in section 25C(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25C.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 of such Code is amended by inserting 
        after the item relating to section 25B the following new item:

                              ``Sec. 25C. 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, 2002.
            (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 March 31, 2003.
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