To amend section 118 of the Internal Revenue Code of 1986 to provide for certain exceptions from rules for determining contributions in aid of construction, and for other purposes.

Amends the Internal Revenue Code with respect to the corporate income tax exclusion of contributions to the capital of the taxpayer. Includes as a qualifying contribution any amount of money or property received by a regulated public utility which provides water or sewage disposal services that: (1) is a contribution in aid of construction; (2) meets certain expenditure requirements; and (3) is not included in the taxpayer's rate base. Excludes amounts paid as service charges for starting or stopping services.

Determines the depreciation deduction for such property by using the straight line method and provides for a 25-year recovery period.