Short title

This Act may be cited as the

Water Conservation Incentive Act

Findings

The Congress finds that— (1)a severe to extreme drought affected approximately 15 percent of the contiguous United States as of the end of April 2004, (2)about 32 percent of the contiguous United States fell in the moderate to extreme drought categories at the end of April 2004, (3)the Colorado River system is facing the worst drought on record, (4)the drought throughout the western United States could persist for up to another 30 years, (5)growing populations and changing values have increased demands on water supplies and river systems, resulting in water use and management conflicts throughout the country, particularly in the West, where the population is expected to increase at least 30 percent in the next 20–25 years, and (6)unless highly efficient water usage practices can be developed and maintained in the West, it will not be possible to provide the water needed to sustain western ecosystems, as well as population growth.

Refundable credit for residential water conservation

(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 36 as section 37 and by inserting after section 35 the following new section:

36.

Residential water conservation

(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 qualified water conservation expenditures made by the taxpayer during the taxable year. (b)

Limitations

(1)

Maximum credit

The credit allowed under subsection (a) for a taxable year shall not exceed $1,000. (2)

Minimum expenditures

If the aggregate qualified water conservation expenditures made by the taxpayer during a taxable year is less than $50, the amount allowed as a credit under subsection (a) for the taxable year shall be zero. (3)

Property standards

No credit shall be allowed under this section for an item of property unless— (A)the original use of such property commences with the taxpayer, (B)such property reasonably can be expected to remain in use for at least 5 years, and (C)such property is installed on or in connection with a dwelling unit located in the United States and used as the principal residence (within the meaning of section 121) of the taxpayer. (c)

Qualified water conservation expenditures

For purposes of this section— (1)

In general

The term qualified water conservation expenditure means the amount paid for qualified water conservation property. (2)

Qualified water conservation property

The term qualified water conservation property means— (A)smart dual or multi program irrigation clock that allows the watering of plant and grass areas separately and which is capable of adjusting the watering schedule based on the watering needs of the landscape being watered, (B)water efficient landscaping, including— (i)xeriscape (which is low-water use native and non-native plants and grasses), and (ii)artificial turf, (C)low-flow shower heads that use no more than 3 gallons of water per minute, (D)ultra low-flush toilets that use no more than 1.6 gallons of water per flush, (E)dual flush toilets that allow the consumer to select either a short flush of 0.80 gallons of water or a long flush of 1.6 gallons of water, (F)drip irrigation, (G)high-efficiency clothes washing machine, and (H)any other property of a type specified by the Secretary. (3)

Limitation on types of property specified by Secretary

The Secretary may only specify a type of property for purposes of paragraph (2)(H) if— (A)the principal use of such property is to reduce the amount of water consumed in any existing residential process, (B)such property or the use of such property is not harmful to persons or the environment and does not induce the use of any other item which may be hazardous to persons or the environment, and (C)the Secretary determines that the credit allowed under subsection (a) with respect to such property, together with any other Federal subsidy of such property, is not superfluous and inefficient. (d)

Special rules

For purposes of this section— (1)

Dollar amounts in case of joint occupancy

In the case of any dwelling unit which is jointly occupied and used during any calendar year as a residence by 2 or more individuals, the following 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 the individual's tenant-stockholder's proportionate share (as defined in section 216(b)(3)) of any expenditures of such corporation. (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 the individual owns, such individual shall be treated as having made the individual's proportionate share of any expenditures of such association. (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)

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. (5)

When expenditure made; amount of expenditure

(A)

In general

Except as provided in subparagraph (B), an expenditure with respect to an item shall be treated as made when the original installation of the item is completed. (B)

Expenditures part of building construction

In the case of an expenditure in connection with the construction or reconstruction of a structure, such expenditure shall be treated as made when the original use of the constructed or reconstructed structure by the taxpayer begins. (C)

Amount

The amount of any expenditure shall be the cost thereof. (6)

Property financed by subsidized energy financing

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 (as defined in section 48(a)(4)(C)). (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.

(b)

Conforming amendments

(1)Section 1016(a) of such Code is amended by striking and at the end of paragraph (30), by striking the period at the end of paragraph (31) and inserting , and, and by adding at the end the following new paragraph:

(32)to the extent provided in section 36(e), in the case of amounts with respect to which a credit has been allowed under section 36.

(2)The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by redesignating the item relating to section 36 as an item relating to section 37 and inserting before the item relating to section 37 the following new item:

Sec.?36.?Residential water conservation

(c)

Effective date

The amendments made by this section shall apply to property placed in service after December 31, 2004.

Credit for water conservation

(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:

45I.

Commercial water conservation credit

(a)

In general

For purposes of section 38, in the case of a small employer, the credit determined under this section for the taxable year is an amount equal to 10 percent of the aggregate adjusted bases of all qualified water conservation property installed in or in connection with the principal place of business (within the meaning of section 280A(c)(1)) of the taxpayer located in the United States. (b)

Definitions

For purposes of this section— (1)

Small employer

(A)

In general

The term small employer means, with respect to any taxable year, any employer if such employer employed an average of 100 or fewer employees on business days during either of the 2 preceding calendar years. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the employer was in existence throughout such year. (B)

Employers not in existence in preceding year

In the case of an employer which was not in existence throughout the 1st preceding taxable year, the determination under subparagraph (A) shall be based on the average number of employees that it is reasonably expected such employer will employ on business days in the current taxable year. (C)

Special rules

(i)

Controlled groups

For purposes of this paragraph, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer. (ii)

Predecessors

Any reference in this paragraph to an employer shall include a reference to any predecessor of such employer. (2)

Qualified water conservation property

The term qualified water conservation property has the meaning given to such term by section 36(c)(2). (c)

Special rules

For purposes of this section— (1)

In general

Rules similar to the rules of section 36(d) (other than paragraph (4) thereof) shall apply for purposes of this section. (2)

Coordination with certain credits

(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 qualified rehabilitation expenditures (as defined in section 47(c)(2)) or to the energy percentage of energy property (as determined under section 48(a)). (B)Expenditures taken into account under section 47 or 48(a) shall not be taken into account under this section. (3)

Denial of double benefit

No deduction or credit shall be allowed under this chapter for any amount taken into account in determining the credit under this section. (4)

Election not to claim credit

This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year. (d)

Basis adjustment

For purposes of this subtitle, if a credit is determined 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 determined.

(b)

Credit made part of general business credit

Section 38(b) of such Code (relating to current year business credit) is amended by striking plus at the end of paragraph (18), by striking the period at the end of paragraph (19) and inserting , plus, and by adding at the end the following new paragraph:

(20)the commercial water conservation credit determined under section 45I(a).

(c)

Basis adjustment

Subsection (a) of section 1016 of such Code is amended by striking and at the end of paragraph (31), by striking the period at the end of paragraph (32) and inserting , and, and by adding at the end the following new paragraph:

(33)to the extent provided in section 45I(d), in the case of amounts with respect to which a credit has been allowed under section 45I.

(d)

Clerical amendment

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item:

Sec.?45I.?Commercial water conservation credit

(e)

Effective date

The amendments made by this section shall apply to property placed in service after December 31, 2004.