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Alternative fuel motor vehicles
The Senate amendment provides a credit for the
purchase of qualified alternative fuel motor
vehicles. The base credit for the purchase of a new
alternative fuel motor vehicle equals 40 percent of
the incremental cost of such vehicle. The otherwise
allowable credit for 40 percent of the incremental
cost is increased by an additional 30 percent of the
incremental cost of the vehicle if the vehicle meets
certain emissions standards. For computation of the
credit, the incremental cost of the vehicle may not
exceed between $5,000 and $40,000 (resulting in a
maximum total credit of between $3,500 and $28,000)
depending upon the weight of the vehicle. For this
purpose, incremental cost generally is defined as
the amount of the increase of the manufacturer's
suggested retail price of such a vehicle compared to
the manufacturer's suggested retail price of a
comparable gasoline or diesel model. Qualifying
alternative fuel motor vehicles are vehicles that
operate only on qualifying alternative fuels and are
incapable of operating on gasoline or diesel (except
in the extent gasoline or diesel fuel is part of a
qualified mixed fuel). Qualifying alternative fuels
are compressed natural gas, liquefied natural gas,
liquefied petroleum gas, hydrogen, and any liquid
mixture consisting of at least 85 percent methanol.
Taxpayers purchasing certain mixed-fuel vehicles
also may claim the alternative fuel motor vehicle
credit, at a reduced rate. A mixed-fuel vehicle is a
vehicle with gross weight of seven tons or more and
is certified by the manufacturer as being able to
operate on a combination of alternative fuel and a
petroleum-based fuel. A qualifying mixed-fuel
vehicle must use at least 75 percent alternative
fuel (a "75/25 mixed-fuel vehicle") or 90
percent alternative fuel (a "90/10 mixed-fuel
vehicle") and be incapable of operating on a
mixture containing less than 75 percent alternative
fuel in the case of a 75/25 vehicle (less than 90
percent alternative fuel in the case of a 90/10
vehicle). A taxpayer purchasing a 75/25 mixed-fuel
vehicle may claim 70 percent of the otherwise
allowable credit. A taxpayer purchasing a 90/10
mixed-fuel vehicle may claim 90 percent of the
otherwise allowable credit.
Credit may not be claimed for qualified alternative
fuel motor vehicles purchased after December 31,
2006. The taxpayer's basis in the property is
reduced by the amount of credit claimed.
Provisions of general application
The Senate amendment provides that unused credits
may be carried forward for 20 years and three years
(but not into taxable years beginning before January
1, 2005).
If a tax-exempt person purchases or leases a
qualifying vehicle, the seller or lessor may claim
the credit.
Effective date. --The Senate amendment is
effective for property placed in service after
December 31, 2004.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
2. Modification of credit for electric vehicles
(sec. 812 of Senate amendment and sec. 30 of the
Code)
Present
Law
A 10-percent tax credit is provided for the cost of
a qualified electric vehicle, up to a maximum credit
of $4,000 (sec. 30). A qualified electric vehicle is
a motor vehicle that is powered primarily by an
electric motor drawing current from rechargeable
batteries, fuel cells, or other portable sources of
electrical current, the original use of which
commences with the taxpayer, and that is acquired
for the use by the taxpayer and not for resale. The
full amount of the credit is available for purchases
prior to 2006. The credit allowed is 25 percent of
the otherwise allowable amount for 2006, and is
unavailable for purchases after
December 31, 2006
. There is no carry forward or carryback of the
credit for electric vehicles.
House
Bill
No provision.
Senate
Amendment
The Senate amendment modifies the present-law credit
for electric vehicles to provide that the credit for
qualifying vehicles generally ranges between $3,500
and $40,000 depending upon the weight of the vehicle
and, for certain vehicles, the driving range of the
vehicle. In the case of property purchased by
tax-exempt persons, the seller may claim the credit.
The taxpayer would be ineligible for the deduction
allowable under present-law section 179A for a
qualified battery electric vehicle on which a credit
is allowable. The provision would repeal the reduce
rate of credit for vehicles purchased in 2006,
permitting taxpayer to claim the full amount of
credit otherwise allowable for 2006. The taxpayer
would be able to carry forward unused credits for 20
years or carry unused credits back for three years
(but not carried back to taxable years beginning
before the
January 1, 2005
).
Effective date. --The Senate amendment is
effective for property placed in service after
December 31, 2004
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
3. Modifications of deduction for refueling
property (sec. 813 of Senate amendment and sec. 179A
of the Code)
Present
Law
Certain costs of qualified clean-fuel vehicle
refueling property may be expensed and deducted when
such property is placed in service (sec. 179A). Up
to $100,000 of such property at each location owned
by the taxpayer may be expensed with respect to that
location. Natural gas, liquefied natural gas,
liquefied petroleum gas, hydrogen, electricity and
any other fuel at least 85 percent of which is
methanol, ethanol, or any other alcohol or ether
comprise clean-burning fuels.
The deduction is unavailable for property placed in
service after
December 31, 2006
.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provision permits taxpayers to
claim a 50-percent credit for the cost of installing
clean-fuel vehicle refueling property to be used in
a trade or business of the taxpayer or installed at
the principal residence of the taxpayer. In the case
of retail clean-fuel vehicle refueling property the
allowable credit may not exceed $30,000. In the case
of residential clean-fuel vehicle refueling property
the allowable credit may not exceed $1,000. The
taxpayer's basis in the property is reduced by the
amount of the credit and the taxpayer may not claim
deductions under section 179A with respect to
property for which the credit is claimed.
In the case of refueling property installed on
property owned or used by a tax-exempt person, the
taxpayer that installs the property may claim the
credit. To be eligible for the credit, the property
must be placed in service before
January 1, 2007
(before
January 1, 2012
in the hydrogen refueling property). The credit
allowable in the taxable year cannot exceed the
difference between the taxpayer's regular tax
(reduced by certain other credits) and the
taxpayer's tentative minimum tax. The taxpayer may
carry forward unused credits for 20 years.
Effective date. --The Senate amendment is
effective for property placed in service after
December 31, 2004
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
4. Credit for retail sale of alternative motor
vehicle fuels (sec. 814 of Senate amendment)
Present
Law
There is no retail credit for the sale of
alternative motor vehicle fuels. However, a
52-cents-per-gallon income tax credit is allowed for
alcohol fuels for 2003 and 2004 (51 cents for
2005-2007). The alcohol fuels credit may be claimed
as a reduction in excise tax payments. Such tax
payments generally are made before the retail level.
In the case of ethanol, the Code provides a separate
10-cents-per-gallon credit for small producers.
House
Bill
No provision.
Senate
Amendment
The Senate amendment permits taxpayers to claim a
credit equal to the gasoline gallon equivalent of 50
cents per gallon of alternative fuel sold in 2005
and 2006. Qualifying alternative fuels are
compressed natural gas, liquefied natural gas,
liquefied petroleum gas, hydrogen, any liquid
mixture consisting of at least 85 percent methanol,
and any liquid mixture consisting of at least 85
percent ethanol. The credit may be claimed for sales
prior to
January 1, 2007
. Under the provision, the credit is part of the
general business credit.
Effective date. --The Senate amendment is
effective for fuel sold at retail after
December 31, 2004
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
5. Small ethanol producer credit (sec. 815 of the
Senate amendment and sec. 40 of the Code)
Present
Law
Small ethanol producer credit
Present law provides several tax benefits for
ethanol and methanol produced from renewable sources
(e.g., biomass) that are used as a motor fuel or
that are blended with other fuels (e.g., gasoline)
for such a use. In the case of ethanol, a separate
10-cents-per-gallon credit is provided for small
producers, defined generally as persons whose
production does not exceed 15 million gallons per
year and whose production capacity does not exceed
30 million gallons per year. The small producer
credit is part of the alcohol fuels tax credit under
section 40 of the Code. The alcohol fuels tax
credits are includible in income. This credit, like
tax credits generally, may not be used to offset
alternative minimum tax liability. The credit is
treated as a general business credit, subject to the
ordering rules and carryforward/carryback rules that
apply to business credits generally. The alcohol
fuels tax credit is scheduled to expire after
December 31, 2007
.
Taxation of cooperatives and their patrons
Under present law, cooperatives in essence are
treated as pass-through entities in that the
cooperative is not subject to corporate income tax
to the extent the cooperative timely pays patronage
dividends. Under present law (sec. 38(d)(4)), the
only excess credits that may be passed through to
cooperative patrons are the rehabilitation credit
(sec. 47), the energy property credit (sec. 48(a)),
and the reforestation credit (sec. 48(b)).
House
Bill
No provision.
Senate
Amendment
The Senate amendment makes several modifications to
the rules governing the small producer ethanol
credit. First, the provision liberalizes the
definition of an eligible small producer to include
persons whose production capacity does not exceed 60
million gallons. Second, the provision allows
cooperatives to elect to pass through the small
ethanol producer credits to its patrons. The credit
is apportioned pro rata among patrons of the
cooperative on the basis of the quantity or value of
the business done with or for such patrons for the
taxable year. An election to pass through the credit
is made on a timely filed return for the taxable
year and is irrevocable for such taxable year.
Third, the provision repeals the rule that includes
the small producer credit in income of taxpayers
claiming it. Finally, the provision provides that
the small producer ethanol credit is not treated as
derived from a passive activity under the Code rules
restricting credits and deductions attributable to
such activities.
Effective date. --The provision is effective
for taxable years ending after date of enactment.
Conference
Agreement
The conference agreement allows cooperatives to
elect to pass the small ethanol producer credit
through to their patrons. Specifically, the credit
is to be apportioned among patrons eligible to share
in patronage dividends on the basis of the quantity
or value of business done with or for such patrons
for the taxable year. The election must be made on a
timely filed return for the taxable year, and once
made, is irrevocable for such taxable year.
The amount of the credit not apportioned to patrons
is included in the organization's credit for the
taxable year of the organization. The amount of the
credit apportioned to patrons is to be included in
the patron's credit for the first taxable year of
each patron ending on or after the last day of the
payment period for the taxable year of the
organization, or, if earlier, for the taxable year
of each patron ending on or after the date on which
the patron receives notice from the cooperative of
the apportionment.
If the amount of the credit shown on the
cooperative's return for a taxable year is in excess
of the actual amount of the credit for that year, an
amount equal to the excess of the reduction in the
credit over the amount not apportioned to patrons
for the taxable year is treated as an increase in
the cooperative's tax. The increase is not treated
as tax imposed for purposes of determining the
amount of any tax credit or for purposes of the
alternative minimum tax.
The conference agreement does not contain any of the
other modifications from the Senate amendment.
Effective date. --The provision is effective
for taxable years ending after date of enactment.
C.
Conservation and Energy Efficiency Provisions
1. Energy efficient new homes (sec. 821 of the
Senate amendment)
Present
Law
A nonrefundable, 10-percent business energy credit
is allowed for the cost of new property that is
equipment (1) that uses solar energy to generate
electricity, to heat or cool a structure, or to
provide solar process heat, or (2) used to produce,
distribute, or use energy derived from a geothermal
deposit, but only, in the case of electricity
generated by geothermal power, up to the electric
transmission stage.
The business energy tax credits are components of
the general business credit (sec. 38(b)(1)). The
business energy tax credits, when combined with all
other components of the general business credit,
generally may not exceed for any taxable year the
excess of the taxpayer's net income tax over the
greater of (1) 25 percent of net regular tax
liability above $25,000 or (2) the tentative minimum
tax. For credits arising in taxable years beginning
after
December 31, 1997
, an unused general business credit generally may be
carried back one year and carried forward 20 years
(sec. 39).
A taxpayer may exclude from income the value of any
subsidy provided by a public utility for the
purchase or installation of an energy conservation
measure. An energy conservation measure means any
installation or modification primarily designed to
reduce consumption of electricity or natural gas or
to improve the management of energy demand with
respect to a dwelling unit (sec. 136).
There is no present-law credit for the construction
of new energy-efficient homes.
House
Bill
No provision.
Senate
Amendment
The provision provides a credit to an eligible
contractor of an amount equal to the aggregate
adjusted bases of all energy-efficient property
installed in a qualified new energy-efficient home
during construction. The credit cannot exceed $1,000
($2,000) in the case of a new home that has a
projected level of annual heating and cooling costs
that is 30 percent (50 percent) less than a
comparable dwelling constructed in accordance with
the latest standards of chapter 4 of the
International Energy Conservation Code approved by
the Department of Energy before the construction of
such qualifying new home and any applicable Federal
minimum efficiency standards for equipment.
The eligible contractor is the person who
constructed the home, or in the case of a
manufactured home, the producer of such home. Energy
efficiency property is any energy-efficient building
envelope component (insulation materials or system
specifically and primarily designed to reduce heat
loss or gain, and exterior windows, including
skylights, and doors) and any energy-efficient
heating or cooling equipment or system that can,
individually or in combination with other
components, meet the standards for the home.
To qualify as an energy-efficient new home, the home
must be: (1) a dwelling located in the United
States, (2) the principal residence of the person
who acquires the dwelling from the eligible
contractor or manufacturer, and (3) certified to
have a projected level of annual heating and cooling
energy consumption that meets the standards for
either the 30-percent or 50-percent reduction in
energy usage. The home may be certified according to
a component-based method, an energy performance
based method, a guarantee-based method, or, in the
case of a qualifying new home which is a
manufactured home, by a method prescribed by the
Administrator of the Environmental Protection Agency
under the Energy Star Labeled Homes program.
Manufactured homes certified by a method prescribed
by the Administrator of the Environmental Protection
Agency under the Energy Star Labeled Homes program
are eligible for the $1,000 credit provided criteria
(1) and (2) are met.
A component-based method of certification is a
method which uses 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
to properties which qualify under the
performance-based method. The certification under
the component-based method shall be provided by a
local building regulatory authority, a utility, or a
home energy rating organization.
A performance-based method of certification is a
method which calculates projected energy usage and
cost reductions in the qualifying new home in
relation to a new home heated by the same fuel type
and constructed in accordance with (1) the latest
standards of chapter 4 of the International Energy
Conservation Code approved by the Department of
Energy before the construction of such qualifying
new home, and (2) any applicable Federal minimum
efficiency standards for equipment. Computer
software shall be used in support of a
performance-based method certification under clause.
Such software shall meet procedures and methods for
calculating energy and cost savings in regulations
promulgated by the Secretary of Energy. The
certification under the performance-based method
shall be provided by an individual recognized by an
organization recognized by the Secretary for such
purposes.
A guarantee-based method of certification is a
method that guarantees in writing to the homeowner
energy savings of either 30 percent or 50 percent
over the 2000 International Energy Conservation Code
for heating and cooling costs. The guarantee shall
be provided for a minimum of 2 years and shall fully
reimburse the homeowner any heating and cooling
costs in excess of the guaranteed amount. Computer
software shall be selected by the provider of the
guarantee to support the guarantee-based method
certification. Such software shall meet procedures
and methods for calculating energy and cost savings
in regulations promulgated by the Secretary of
Energy. The certification under the guarantee-based
method shall be provided by an individual recognized
by an organization recognized by the Secretary for
such purposes.
In prescribing regulations for performance-based and
guarantee-based certification methods, the Secretary
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 provide that any calculation
procedures be fuel neutral such that the same energy
efficiency measures allow a qualifying new home to
be eligible for the credit under this section
regardless of whether such home uses a gas or oil
furnace or boiler or an electric heat pump, and
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. Other rules
apply relating to the form of the certification and
the manner in which it is provided to the buyer of
the home.
In the case of a qualifying new home which is a
manufactured home, certification of compliance with
energy efficiency standards shall be provided by a
manufactured home primary inspection agency.
The credit will be part of the general business
credit. No credits attributable to energy efficient
homes may be carried back to any taxable year ending
on or before the effective date of the credit. 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 for such
taxable year.
Effective date. --The credit applies to homes
whose construction is substantially completed after
December 31, 2004, and which are purchased during
the period beginning on December 31, 2004, and
ending on December 31, 2007 (December 31, 2005 in
the case of the $1,000 credit).
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
2. Energy efficient appliances (sec. 822 of the
Senate amendment)
Present
Law
A nonrefundable, 10-percent business energy credit
is allowed for the cost of new property that is
equipment: (1) that uses solar energy to generate
electricity, to heat or cool a structure, or to
provide solar process heat; or (2) used to produce,
distribute, or use energy derived from a geothermal
deposit, but only, in the case of electricity
generated by geothermal power, up to the electric
transmission stage.
The business energy tax credits are components of
the general business credit (sec. 38(b)(1)). The
business energy tax credits, when combined with all
other components of the general business credit,
generally may not exceed for any taxable year the
excess of the taxpayer's net income tax over the
greater of: (1) 25 percent of net regular tax
liability above $25,000 or (2) the tentative minimum
tax. For credits arising in taxable years beginning
after
December 31, 1997
, an unused general business credit generally may be
carried back one year and carried forward 20 years
(sec. 39).
A taxpayer may exclude from income the value of any
subsidy provided by a public utility for the
purchase or installation of an energy conservation
measure. An energy conservation measure means any
installation or modification primarily designed to
reduce consumption of electricity or natural gas or
to improve the management of energy demand with
respect to a dwelling unit (sec. 136).
There is no present-law credit for the manufacture
of energy-efficient appliances.
House
Bill
No provision.
Senate
Amendment
The provision provides a credit for the production
of certain energy-efficient clothes washers and
refrigerators. The credit equals $50 per appliance
for (1) energy-efficient clothes washers produced
before December 31, 2007 with a modified energy
factor ("MEF") of 1.42 MEF or greater, and
(2) refrigerators produced before December 31, 2005
that consume 10 percent fewer kilowatt-hours per
year than the energy conservation standards
promulgated by the Department of Energy that took
effect on July 1, 2001. The credit equals $100 for
(1) energy-efficient clothes washers produced before
December 31, 2007 with a MEF of 1.5 or greater, and
(2) refrigerators produced before December 31, 2007
that consume at least 15 percent fewer
kilowatt-hours per year (at least 20 percent less
for production in 2007) than the energy conservation
standards promulgated by the Department of Energy
that took effect on July 1, 2001. The credit is $150
for refrigerators produced before January 1, 2007
that consume at least 20 percent fewer
kilowatt-hours per year than the energy conservation
standards promulgated by the Department of Energy
that took effect on July 1, 2001. A refrigerator
must be an automatic defrost refrigerator-freezer
with an internal volume of at least 16.5 cubic feet
to qualify for the credit. A clothes washer is any
residential clothes washer, including a residential
style coin operated washer, that satisfies the
relevant efficiency standard.
For each category of appliances (e.g., washers that
meet the $50 standard, washers that meet the $100
standard, refrigerators that meet the $50 standard,
refrigerators that meet the $100 standard, and
refrigerators that meet the $150 standard), only
production in excess of average production for each
such category during calendar years 2001-2003 would
be eligible for the credit.
The taxpayer may not claim credits in excess of $60
million for all taxable years, and may not claim
credits in excess of $30 million with respect to
appliances that only qualify for the $50 credit.
Additionally, the credit allowed for all appliances
may not exceed two percent of the average annual
gross receipts of the taxpayer for the three taxable
years preceding the taxable year in which the credit
is determined.
The credit would be part of the general business
credit.
Effective
Date
The credit applies to appliances produced after
December 31, 2004
, and prior to
January 1, 2008
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
3. Residential solar hot water, photovoltaics and
other energy efficient property (sec. 823 of the
Senate amendment)
Present
Law
A nonrefundable, 10-percent business energy credit
is allowed for the cost of new property that is
equipment (1) that uses solar energy to generate
electricity, to heat or cool a structure, or to
provide solar process heat, or (2) used to produce,
distribute, or use energy derived from a geothermal
deposit, but only, in the case of electricity
generated by geothermal power, up to the electric
transmission stage.
The business energy tax credits are components of
the general business credit (sec. 38(b)(1)). The
business energy tax credits, when combined with all
other components of the general business credit,
generally may not exceed for any taxable year the
excess of the taxpayer's net income tax over the
greater of (1) 25 percent of net regular tax
liability above $25,000 or (2) the tentative minimum
tax. For credits arising in taxable years beginning
after
December 31, 1997
, an unused general business credit generally may be
carried back one year and carried forward 20 years
(sec. 39).
A taxpayer may exclude from income the value of any
subsidy provided by a public utility for the
purchase or installation of an energy conservation
measure. An energy conservation measure means any
installation or modification primarily designed to
reduce consumption of electricity or natural gas or
to improve the management of energy demand with
respect to a dwelling unit (sec. 136).
There is no present-law personal tax credit for
energy efficient residential property.
House
Bill
No provision.
Senate
Amendment
The provision provides a personal tax credit for the
purchase of qualified wind energy property,
qualified photovoltaic property, and qualified solar
water heating property that is used exclusively for
purposes other than heating swimming pools and hot
tubs. The credit is equal to 15 percent for solar
water heating property and photovoltaic property,
and 30 percent for wind energy property. The maximum
credit for each of these systems of property is
$2,000. The provision also provides a 30 percent
credit for the purchase of qualified fuel cell power
plants. The credit for any fuel cell may not exceed
$500 for each 0.5 kilowatt of capacity.
Qualifying solar water heating property means an
expenditure for property to heat water for use in a
dwelling unit located in the United States and used
as a residence if at least half of the energy used
by such property for such purpose is derived from
the sun. Qualified photovoltaic property is property
that uses solar energy to generate electricity for
use in a dwelling unit. Qualified wind energy
property is property that uses wind energy to
generate electricity for use in a dwelling unit
located in the United States and used as a principal
residence by the taxpayer. A qualified fuel cell
power plant is an integrated system comprised of a
fuel cell stack assembly and associated balance of
plant components that converts a fuel into
electricity using electrochemical means, and which
has an electricity-only generation efficiency of
greater than 30 percent and that generates at least
0.5 kilowatts of electricity. The qualified fuel
cell power plant must be installed on or in
connection with a dwelling unit located in the
United States and used by the taxpayer as a
principal residence.
The provision also provides a credit for the
purchase of other qualified energy efficient
property, as described below:
Electric heat pump water heater with an
energy factor of at least 1.7. The maximum credit is
$150 per unit.
Advanced natural gas, oil, propane furnace, or
hot water boiler that achieves at least 95
percent annual fuel utilization efficiency. The
maximum credit is $125 per unit.
Advanced natural gas, oil, propane water heater
that has an energy factor of at least 0.80 in the
standard Department of Energy test procedure. The
maximum credit is $150 per unit.
Natural gas, oil, propane water heater that
has an energy factor of at least 0.65 but less than
0.80 in the standard Department of Energy test
procedure. The maximum credit is $50 per unit.
Advanced main air circulating fan used in a
new natural gas, propane, or oil-fired furnace,
including main air circulating fans that use a
brushless permanent magnet motor or another type of
motor which achieves similar or higher efficiency at
half and full speed, as determined by the Secretary.
The maximum credit is $50.
Advanced combination space and water heating
system that has a combined energy factor of at
least 0.80 and a combined annual fuel utilization
efficiency (AFUE) of at least 78 percent in the
standard Department of Energy test procedure. The
maximum credit is $150.
Combination space and water heating system
that has a combined energy factor of at least 0.65
but less than 0.80 and a combined annual fuel
utilization efficiency (AFUE) of at least 78 percent
in the standard Department of Energy test procedure.
The maximum credit is $50.
Geothermal heat pumps that have an EER of at
least 21. The maximum credit is $250 per unit.
The credit is nonrefundable, and the depreciable
basis of the property is reduced by the amount of
the credit. Expenditures for labor costs allocable
to onsite preparation, assembly, or original
installation of property eligible for the credit are
eligible expenditures. The credit is allowed against
the regular and alternative minimum tax.
Certain equipment safety requirements need to be met
to qualify for the credit. Special proration rules
apply in the case of jointly owned property,
condominiums, and tenant-stockholders in cooperative
housing corporations. With the exception of wind
energy property, if less than 80 percent of the
property is used for nonbusiness purposes, only that
portion of expenditures that is used for nonbusiness
purposes is taken into account.
Effective
Date
The credit applies to expenditures after
December 31, 2004
, and prior to
January 1, 2008
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
4. Credit for business installation of qualified
fuel cells and stationary microturbine power plants
(sec. 824 of the Senate amendment and sec. 48 of the
Code)
Present
Law
A nonrefundable, 10-percent business energy credit
is allowed for the cost of new property that is
equipment (1) that uses solar energy to generate
electricity, to heat or cool a structure, or to
provide solar process heat, or (2) used to produce,
distribute, or use energy derived from a geothermal
deposit, but only, in the case of electricity
generated by geothermal power, up to the electric
transmission stage.
The business energy tax credits are components of
the general business credit (sec. 38(b)(1)). The
business energy tax credits, when combined with all
other components of the general business credit,
generally may not exceed for any taxable year the
excess of the taxpayer's net income tax over the
greater of (1) 25 percent of net regular tax
liability above $25,000 or (2) the tentative minimum
tax. For credits arising in taxable years beginning
after
December 31, 1997
, an unused general business credit generally may be
carried back one year and carried forward 20 years
(sec. 39).
There is no present-law credit for fuel cell or
microturbine power plant property.
House
Bill
No provision.
Senate
Amendment
The provision provides a 30 percent business energy
credit for the purchase of qualified fuel cell power
plants for businesses. A qualified fuel cell power
plant is an integrated system comprised of a fuel
cell stack assembly and associated balance of plant
components that converts a fuel into electricity
using electrochemical means, and which has an
electricity-only generation efficiency of greater
than 30 percent and generates at least 0.5 kilowatts
of electricity. The credit for any fuel cell may not
exceed $500 for each 0.5 kilowatts of capacity.
Additionally, the provision provides a 10 percent
credit for the purchase of qualifying stationary
microturbine power plants. A qualified stationary
microturbine power plant is an integrated system
comprised of a gas turbine engine, a combustor, a
recuperator or regenerator, a generator or
alternator, and associated balance of plant
components which converts a fuel into electricity
and thermal energy. Such system also includes all
secondary components located between the existing
infrastructure for fuel delivery and the existing
infrastructure for power distribution, including
equipment and controls for meeting relevant power
standards, such as voltage, frequency and power
factors. Such system must have an electricity-only
generation efficiency of not less that 26 percent at
International Standard Organization conditions and a
capacity of less than 2,000 kilowatts. The credit is
limited to the lesser of 10 percent of the basis of
the property or $200 for each kilowatt of capacity.
The credit is nonrefundable. The taxpayer's basis in
the property is reduced by the amount of the credit
claimed.
Effective date. --The credit for businesses
applies to property placed in service after
December 31, 2004
, and before
January 1, 2008
(January 1, 2007 in the case of microturbines),
under rules similar to rules of section 48(m) of the
Code (as in effect on the day before the date of
enactment of the Revenue Reconciliation Act of
1990).
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
5. Energy efficient commercial building deduction
(sec. 825 of Senate amendment)
Present
Law
No special deduction is currently provided for
expenses incurred for energy-efficient commercial
building property.
House
Bill
No provision.
Senate
Amendment
The provision provides a deduction equal to
energy-efficient commercial building property
expenditures made by the taxpayer. Energy-efficient
commercial building property expenditures are
defined as amounts paid or incurred for
energy-efficient property installed in connection
with the construction or reconstruction of property:
(1) which is depreciable property; (2) which is
located in the United States, and (3) which is the
type of structure to which the Standard 90.1-2001 of
the American Society of Heating, Refrigerating, and
Air Conditioning Engineers and the Illuminating
Engineering Society of North America ("ASHRAE/IESNA")
is applicable. The deduction is limited to an amount
equal to $2.25 per square foot of the property for
which such expenditures are made. The deduction is
allowed in the year in which the property is placed
in service.
Energy-efficient commercial building property
generally means any property that reduces total
annual energy and power costs with respect to the
lighting, heating, cooling, ventilation, and hot
water supply systems of the building by 50 percent
or more in comparison to a building which minimally
meets the requirements of Standard 90.1-2001 of
ASHRAE/IESNA. Because of the requirement that, in
order to qualify, a building must fall within the
scope of the ASHRAE/IESNA Standard 90.1-2001,
residential rental property that is less than four
stories does not qualify.
Certain certification requirements must be met in
order to qualify for the deduction. The Secretary,
in consultation with the Secretary of Energy, will
promulgate regulations that describe methods of
calculating and verifying energy and power costs
using qualified computer software. The methods for
calculation 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 boiler or an electric heat pump.
The Secretary shall prescribe procedures for the
inspection and testing for compliance of buildings
that are comparable, given the difference between
commercial and residential buildings, to the
requirements in the Mortgage Industry National Home
Energy Rating Standards. Individuals qualified to
determine compliance shall only be those recognized
by one or more organizations certified by the
Secretary for such purposes.
For energy-efficient commercial building property
expenditures made by a public entity, such as public
schools, the Secretary shall promulgate regulations
that will allow the value of the deduction
(determined without regard to the tax-exempt status
of such entity) to be allocated to the person
primarily responsible for designing the property in
lieu of the public entity.
In the case of lighting systems, until such time as
the Secretary issues final regulations, a partial
deduction shall be allowed for a reduction in
Lighting Power Density of 40 percent (50 percent in
the case of a warehouse) of the minimum requirements
in Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA
Standard 90.1-2001. A pro-rated partial deduction is
allowed in the case of a lighting system that
reduces lighting power density between 25 percent
and 40 percent. Certain lighting level and lighting
control requirements must also be met in order to
qualify for the partial lighting deductions.
Effective date. --The provision is effective
for taxable years beginning after December 31, 2004
for expenditures in connection with a building whose
construction is completed on or before December 31,
2009.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
6. Three-year applicable recovery period for
depreciation of qualified energy management devices
and qualified water submetering devices (secs. 826
and 827 of the Senate amendment and sec. 168 of the
Code)
Present
Law
No special recovery period is currently provided for
depreciation of qualified energy management devices
or water submetering devices.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides a three-year recovery
period for qualified energy management devices
placed in service by any taxpayer who is a supplier
of electric energy or is a provider of electric
energy services. A qualified energy management
device is any energy management device that is used
by the taxpayer to measure and record electricity
usage data on a time-differentiated basis in at
least four separate time segments per day, and to
provide such data on at least a monthly basis to
both consumers and the taxpayer.
Additionally, the Senate amendment provides a
three-year recovery period for qualified water
submetering devices placed in service by any
taxpayer who is an eligible resupplier. An eligible
resupplier is any taxpayer who purchases and
installs qualified water submetering devices in
every unit in any multi-unit property. A qualified
water submetering device is any water submetering
device that is used by the taxpayer to measure and
record water usage data and to provide such data on
at least a monthly basis to both consumers and the
taxpayer.
Effective date. --The provision is effective
for any qualified energy management device or water
submetering device placed in service after
December 31, 2004
, and before
January 1, 2008
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
7. Energy credit for combined heat and power
system property (sec. 828 of the Senate amendment
and sec. 48 of the Code)
Present
Law
A nonrefundable, 10-percent business energy credit
is allowed for the cost of new property that is
equipment (1) that uses solar energy to generate
electricity, to heat or cool a structure, or to
provide solar process heat, or (2) used to produce,
distribute, or use energy derived from a geothermal
deposit, but only, in the case of electricity
generated by geothermal power, up to the electric
transmission stage.
The business energy tax credits are components of
the general business credit (sec. 38(b)(1)). The
business energy tax credits, when combined with all
other components of the general business credit,
generally may not exceed for any taxable year the
excess of the taxpayer's net income tax over the
greater of (1) 25 percent of net regular tax
liability above $25,000 or (2) the tentative minimum
tax. For credits arising in taxable years beginning
after
December 31, 1997
, an unused general business credit generally may be
carried back one year and carried forward 20 years
(sec. 39).
A taxpayer may exclude from income the value of any
subsidy provided by a public utility for the
purchase or installation of an energy conservation
measure. An energy conservation measure means any
installation or modification primarily designed to
reduce consumption of electricity or natural gas or
to improve the management of energy demand with
respect to a dwelling unit (sec. 136).
There is no present-law credit for combined heat and
power ("
CHP
") property.
House
Bill
No provision.
Senate
Amendment
The Senate amendment provides a 10-percent credit
for the purchase of
CHP
property.
CHP
property is property: (1) that uses the same energy
source for the simultaneous or sequential generation
of electrical power, mechanical shaft power, or
both, in combination with the generation of steam or
other forms of useful thermal energy (including
heating and cooling applications); (2) that has an
electrical capacity of not more than 15 megawatts or
a mechanical energy capacity of no more than 2000
horsepower or an equivalent combination of
electrical and mechanical energy capacities; (3)
that produces at least 20 percent of its total
useful energy in the form of thermal energy that is
not used to produce electrical or mechanical power,
and produces at least 20 percent of its total useful
energy in the form of electrical or mechanical power
(or a combination thereof); and (4) the energy
efficiency percentage of which exceeds 60 percent.
CHP
property does not include property used to transport
the energy source to the generating facility or to
distribute energy produced by the facility.
Additionally, the Senate amendment provides that
systems whose fuel source is at least 90 percent
bagasse and that would qualify for the credit but
for the failure to meet the efficiency standard are
eligible for a credit that is reduced in proportion
to the degree to which the system fails to meet the
efficiency standard. For example, a system that
would otherwise be required to meet the 60-percent
efficiency standard, but which only achieves
30-percent efficiency, would be permitted a credit
equal to one-half of the otherwise allowable credit
(i.e., a 5-percent credit).
Effective date. --The credit applies to
property placed in service after
December 31, 2004
, and before
January 1, 2007
.
Conference
Agreement
The conference agreement does not include the Senate
amendment provision.
8. Energy efficient improvements to existing
homes (sec. 829 of the Senate amendment)
Present
Law
A taxpayer may exclude from income the value of any
subsidy provided by a public utility for the
purchase or installation of an energy conservation
measure. An energy conservation measure means any
installation or modification primarily designed to
reduce consumption of electricity or natural gas or
to improve the management of energy demand with
respect to a dwelling unit (sec. 136).
There is no present law credit for energy efficiency
improvements to existing homes.
House
Bill
No provision.
Senate
Amendment
The provision would provide a 10-percent
nonrefundable credit for the purchase of qualified
energy efficiency improvements. The maximum credit
for a taxpayer with respect to the same dwelling for
all taxable years is $300. Unused credits may be
carried forward to succeeding taxable years.
A qualified energy efficiency improvement would be
any energy efficiency building envelope component
that is certified to meet or exceed the latest
prescriptive criteria for such component in the
International Energy Conservation Code approved by
the Department of Energy before the installation of
such component, or any combination of energy
efficiency measures that is certified to achieve at
least a 30 percent reduction in heating and cooling
energy usage for the dwelling and that is installed
in or on a dwelling that (1) is located in the
United States; (2) is owned and used by the taxpayer
as the taxpayer's principal residence; (3) has not
been treated as a qualifying new home for purposes
of the energy-efficient new homes credit .
Additionally, the original use of such component or
combination of measures commences with the taxpayer,
and such component or combination of measures can
reasonably be expected to remain in use for at least
five years.
Building envelope components are: (1) insulation
materials or systems which are specifically and
primarily designed to reduce the heat loss or gain
for a dwelling, and (2) exterior windows (including
skylights) and doors.
Homes shall be certified according to a
component-based method or a performance-based
method. The component-based method shall be based on
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