HR1871-119

What This Bill Does

The Water Conservation Rebate Tax Parity Act expands Internal Revenue Code section 136 beyond energy conservation subsidies. It excludes from gross income subsidies provided directly or indirectly by a public utility to a customer, or by a state or local government to a resident, for water conservation or efficiency measures. It also excludes subsidies from storm water management providers or state or local governments for storm water management measures, and subsidies from state or local governments for wastewater management measures, but only when the measure relates to the taxpayer's principal residence. The bill defines water conservation or efficiency measures as evaluations or property changes primarily reducing water use or improving water demand management; storm water measures as property changes to reduce or manage storm water, including flood impacts; and wastewater measures as property changes to manage wastewater, septic tanks, or cesspools. It expands public utility to include water utilities, defines storm water management provider, treats governments as persons for those definitions, applies after December 31, 2021, and says no inference is created for earlier subsidies.

Who Benefits and How

Homeowners receiving water conservation rebates benefit because qualifying subsidies are excluded from taxable income. Residents installing storm water improvements benefit from tax-free treatment for covered flood and runoff management payments. Households upgrading septic or wastewater systems benefit when state or local subsidies qualify for exclusion. Water utilities and storm water providers benefit because their rebate programs become more attractive to customers.

Who Bears the Burden and How

The Treasury Department must update guidance for water, storm water, and wastewater subsidy exclusions. Internal Revenue Service staff must administer retroactive post-2021 claims and verify principal-residence limits. Federal taxpayers bear revenue loss from excluding more conservation subsidies. Homeowners cannot infer that pre-2022 subsidies receive the same tax treatment from this bill.

Key Provisions

• Expands section 136 to exclude water conservation and efficiency subsidies from income.
• Extends the exclusion to storm water and wastewater management measures for principal residences.
• Defines water, storm water, wastewater, public utility, and storm water provider terms.
• Applies to amounts received after December 31, 2021 without creating inference for earlier payments.