District Heating and Cooling Tax Incentives Act of 1985

District Heating and Cooling Tax Incentives Act of 1985 - Amends the Internal Revenue Code to allow an investment tax credit for district heating or cooling property. Defines "district heating or cooling property" as any equipment or other property used as an integral part of a district heating or cooling system.

Exempts district heating or cooling property which is transferred to a governmental unit or tax-exempt organization from the recapture rules relating to prohibited dispositions of investment tax credit property.

Treats district heating or cooling property as depreciable personal property for purposes of tax rules relating to the recapture of excess depreciation.

Exempts district heating or cooling property from classification as ten- or 15-year public utility property for purposes of accelerated depreciation under the accelerated cost recovery system.

Excludes obligations for local district heating or cooling facilities from the volume cap on private activity bonds.