[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 288 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 288

 To amend the Internal Revenue Code of 1986 to provide a reduction in 
     the capital gains tax on individuals, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             February 3 (legislative day, January 5), 1993

  Mr. Dorgan introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide a reduction in 
     the capital gains tax on individuals, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Capital Gains Tax 
Fairness Act of 1993''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

        TITLE I--REDUCTION IN CAPITAL GAINS TAX FOR INDIVIDUALS

SEC. 101. REDUCTION IN CAPITAL GAINS TAX FOR INDIVIDUALS.

    (a) General Rule.--Part I of subchapter P of chapter 1 (relating to 
treatment of capital gains) is amended by adding at the end thereof the 
following new section:

``SEC. 1202. CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a deduction for the taxable year an amount equal to the sum 
of--
            ``(1) the annual capital gains deduction (if any) 
        determined under subsection (b), plus
            ``(2) the lifetime capital gains deduction for nontradable 
        property (if any) determined under subsection (c).
    ``(b) Annual Capital Gains Deduction.--
            ``(1) In general.--For purposes of subsection (a), the 
        annual capital gains deduction determined under this subsection 
        is the lesser of--
                    ``(A) the net capital gain for the taxable year, or
                    ``(B) $1,000.
            ``(2) Phase-out for incomes between $100,000 and 
        $150,000.--The $1,000 amount specified in subparagraph (B) of 
        paragraph (1) shall be reduced by an amount which bears the 
        same ratio to $1,000 as--
                    ``(A) the adjusted gross income of the taxpayer for 
                the taxable year in excess of $100,000, bears to, or
                    ``(B) $50,000.
            ``(3) Certain individuals not eligible.--This subsection 
        shall not apply to--
                    ``(A) any taxpayer whose adjusted gross income for 
                the taxable year exceeds $150,000, or
                    ``(B) any individual with respect to whom a 
                deduction under section 151 is allowable to another 
                taxpayer for a taxable year beginning in the calendar 
                year in which such individual's taxable year begins.
            ``(4) Annual deduction not available for sales to related 
        persons.--The amount of the net capital gain taken into account 
        under paragraph (1)(A) shall not exceed the amount of the net 
        capital gain determined by not taking into account gains and 
        losses from sales and exchanges to any related person (within 
        the meaning of section 267(b) or 707(b)(1)).
    ``(c) Lifetime Capital Gains Deduction for Nontradable Property.--
            ``(1) In general.--For purposes of subsection (a), the 
        lifetime capital gains deduction for nontradable property 
        determined under this subsection for any taxable year is 50 
        percent of the qualified gain for such taxable year.
            ``(2) Limitation.--
                    ``(A) In general.--The amount of the qualified gain 
                taken into account under paragraph (1) for any taxable 
                year shall not exceed $200,000 reduced by the aggregate 
                amount of the qualified gain taken into account under 
                this subsection by the taxpayer for prior taxable 
                years.
                    ``(B) Special rule for joint returns.--The amount 
                of the qualified gain taken into account under this 
                subsection on a joint return for any taxable year shall 
                be allocated equally between the spouses for purposes 
                of determining the limitation under subparagraph (A) 
                for any succeeding taxable year.
            ``(3) Qualified gain.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `qualified gain' means the lesser of--
                            ``(i) the net capital gain for the taxable 
                        year reduced by the annual capital gains 
                        deduction for such taxable year, or
                            ``(ii) the net capital gain for the taxable 
                        year determined by only taking into account 
                        gains and losses from sales and exchanges on or 
                        after January 27, 1993, of qualified assets.
                    ``(B) Special rules.--
                            ``(i) For purposes of subparagraph (A)(ii), 
                        any amount treated as a capital loss for the 
                        taxable year under section 1212 shall be 
                        treated as a loss from a sale or exchange on or 
                        after January 27, 1993, of a qualified asset.
                            ``(ii) A taxpayer may elect for any taxable 
                        year not to take into account under this 
                        subsection all (or any portion) of the 
                        qualified gain for such taxable year. Such an 
                        election, once made, shall be irrevocable.
            ``(4) Qualified assets.--For purposes of this subsection, 
        the term `qualified assets' means any property other than--
                    ``(A) stock or securities for which there is a 
                market on an established securities market or 
                otherwise, and
                    ``(B) property (other than stock or securities) of 
                a kind regularly traded on an established market.
            ``(5) Subsection not to apply to certain individuals.--This 
        subsection shall not apply to any individual who has not 
        attained age 25 before the close of the taxable year.
    ``(d) Section Not to Apply to Certain Taxpayers.--No deduction 
shall be allowed under this section to--
            ``(1) a married individual (within the meaning of section 
        7703) filing a separate return for the taxable year, or
            ``(2) an estate or trust.
    ``(e) Special Rules.--
            ``(1) Treatment of certain sales of interests in 
        partnerships, etc.--For purposes of subsection (c), any gain 
        from the sale or exchange of a qualified asset which is an 
        interest in a partnership, S corporation, or trust shall not be 
        treated as gain from the sale or exchange of a qualified asset 
        to the extent such gain is attributable to unrealized 
        appreciation in the value of property described in subparagraph 
        (A) or (B) of subsection (c)(4) which is held by such entity. 
        Rules similar to the rules of section 751(f) shall apply for 
        purposes of the preceding sentence.
            ``(2) Deduction available only for sales or exchanges on or 
        after january 27, 1993.--The amount of the net capital gain 
        taken into account under subsections (b)(1)(A) and (c)(3)(A)(i) 
        shall not exceed the amount of the net capital gain determined 
        by only taking into account gains and losses from sales and 
        exchanges on or after January 27, 1993. For purposes of the 
        preceding sentence, any amount treated as a capital loss for 
        the taxable year under section 1212 shall be treated as a loss 
        from a sale or exchange on or after January 27, 1993.
            ``(3) Determination of adjusted gross income.--
                    ``(A) In general.--For purposes of subsection (b), 
                adjusted gross income shall be determined--
                            ``(i) without regard to the deduction 
                        allowed under this section, but
                            ``(ii) after the application of sections 
                        86, 135, 219, and 469.
                    ``(B) Coordination with other adjusted gross income 
                limitations.--For purposes of sections 86, 135, 219, 
                and 469, adjusted gross income shall be determined 
                without regard to the deduction allowed under this 
                section.
            ``(4) Special rule for pass-thru entities.--
                    ``(A) In general.--In applying this section with 
                respect to any pass-thru entity--
                            ``(i) the determination of when the sale or 
                        exchange occurs shall be made at the entity 
                        level, and
                            ``(ii) any gain attributable to such entity 
                        shall in no event be treated as gain from sale 
                        or exchange of a qualified asset if interests 
                        in such entity are described in subparagraph 
                        (A) or (B) of subsection (c)(4).
                    ``(B) Pass-thru entity defined.--For purposes of 
                subparagraph (A), the term `pass-thru-entity' means--
                            ``(i) a regulated investment company,
                            ``(ii) a real estate investment trust,
                            ``(iii) an S corporation,
                            ``(iv) a partnership,
                            ``(v) an estate or trust, and
                            ``(vi) a common trust fund.''
    (b) Treatment of Collectibles.--
            (1) In general.--Section 1222 is amended by inserting after 
        paragraph (11) the following new paragraph:
            ``(12) Special rule for collectibles.--
                    ``(A) In general.--Any gain or loss from the sale 
                or exchange of a collectible shall be treated as a 
                short-term capital gain or loss (as the case may be), 
                without regard to the period such asset was held. The 
                preceding sentence shall apply only to the extent the 
                gain or loss is taken into account in computing taxable 
                income.
                    ``(B) Treatment of certain sales of interests in 
                partnerships, etc.--For purposes of subparagraph (A), 
                any gain from the sale or exchange of an interest in a 
                partnership, S corporation, or trust which is 
                attributable to unrealized appreciation in the value of 
                collectibles held by such entity shall be treated as 
                gain from the sale or exchange of a collectible. Rules 
                similar to the rules of section 751(f) shall apply for 
                purposes of the preceding sentence.
                    ``(C) Collectible.--For purposes of this paragraph, 
                the term `collectible' means any capital asset which is 
                a collectible (as defined in section 408(m) without 
                regard to paragraph (3) thereof).''
            (2) Charitable deduction not affected.--
                    (A) Paragraph (1) of section 170(e) is amended by 
                adding at the end thereof the following new sentence: 
                ``For purposes of this paragraph, section 1222 shall be 
                applied without regard to paragraph (12) thereof 
                (relating to special rule for collectibles).''
                    (B) Clause (iv) of section 170(b)(1)(C) is amended 
                by inserting before the period at the end thereof the 
                following: ``and section 1222 shall be applied without 
                regard to paragraph (12) thereof (relating to special 
                rule for collectibles)''.
    (c) Minimum Tax.--Paragraph (1) of section 56(b) is amended by 
adding at the end thereof the following new subparagraph:
                    ``(G) Capital gains deduction not allowed.--The 
                deduction under section 1202 shall not be allowed.''
    (d) Coordination With Maximum Capital Gains Rate.--Subsection (h) 
of section 1 (relating to maximum capital gains rate) is amended to 
read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital gain for 
        any taxable year, then the tax imposed by this section shall 
        not exceed the sum of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                the greater of--
                            ``(i) taxable income reduced by the amount 
                        of the net capital gain, or
                            ``(ii) the amount of taxable income taxed 
                        at a rate below 28 percent, plus
                    ``(B) a tax of 28 percent of the amount of taxable 
                income in excess of the amount determined under 
                subparagraph (A).
            ``(2) Coordination with section 1202 deduction.--For 
        purposes of paragraph (1), the amount of the net capital gain 
        shall be reduced by the sum of--
                    ``(A) the amount allowable as a deduction under 
                section 1202(a)(1), plus
                    ``(B) the amount of the qualified gain (as defined 
                in section 1202(c)) for the taxable year to the extent 
                taken into account under section 1202(c)(1) for the 
                taxable year.''
    (d) Conforming Amendments.--
            (1) Subsection (a) of section 62 is amended by inserting 
        after paragraph (14) the following new paragraph:
            ``(15) Capital gains deduction.--The deduction allowed by 
        section 1202.''
            (2) Clause (ii) of section 163(d)(4)(B) is amended by 
        inserting ``, reduced by the amount of any deduction allowable 
        under section 1202 attributable to gain from such property'' 
        after ``investment''.
            (3)(A) Paragraph (2) of section 172(d) is amended to read 
        as follows:
            ``(2) Capital gains and losses of taxpayers other than 
        corporations.--In the case of a taxpayer other than a 
        corporation--
                    ``(A) the amount deductible on account of losses 
                from sales or exchanges of capital assets shall not 
                exceed the amount includible on account of gains from 
                sales or exchanges of capital assets; and
                    ``(B) the deduction provided by section 1202 shall 
                not be allowed.''
            (B) Subparagraph (B) of section 172(d)(4) is amended by 
        inserting ``, (2)(B),'' after ``paragraph (1)''.
            (4)(A) Section 220 (relating to cross reference) is amended 
        to read as follows:

``SEC. 220. CROSS REFERENCES.

                                ``(1) For deduction for net capital 
gains in the case of a taxpayer other than a corporation, see section 
1202.
                                ``(2) For deductions in respect of a 
decedent, see section 691.''
            (B) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking ``reference'' in the item 
        relating to section 220 and inserting ``references''.
            (5) Paragraph (4) of section 691(c) is amended by striking 
        ``1201, and 1211'' and inserting ``1201, 1202, and 1211''.
            (6) The second sentence of paragraph (2) of section 871(a) 
        is amended by inserting ``such gains and losses shall be 
        determined without regard to section 1202 (relating to 
        deduction for net capital gain) and'' after ``except that''.
            (7) Paragraph (1) of section 1402(i) is amended to read as 
        follows:
            ``(1) In general.--In determining the net earnings from 
        self-employment of any options dealer or commodities dealer--
                    ``(A) notwithstanding subsection (a)(3)(A), there 
                shall not be excluded any gain or loss (in the normal 
                course of the taxpayer's activity of dealing in or 
                trading section 1256 contracts) from section 1256 
                contracts or property related to such contracts, and
                    ``(B) the deduction provided by section 1202 shall 
                not apply.''
    (f) Clerical Amendment.--The table of sections for part I of 
subchapter P of chapter 1 is amended by adding at the end thereof the 
following new item:

                              ``Sec. 1202. Capital gains deduction for 
                                        individuals.''
    (g) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        ending on or after January 27, 1993.
            (2) Treatment of collectibles.--The amendments made by 
        subsection (b) shall apply to dispositions on or after January 
        27, 1993.
            (3) Coordination with prior transition rule.--Any amount 
        treated as long-term capital gain by reason of paragraph (3) or 
        (4) of section 1122(h) of the Tax Reform Act of 1986 shall not 
        be taken into account for purposes of applying section 1202 of 
        the Internal Revenue Code of 1986 (as added by this section).

                    TITLE II--DEPRECIATION RECAPTURE

SEC. 201. RECAPTURE UNDER SECTION 1250 OF TOTAL AMOUNT OF DEPRECIATION.

    (a) General Rule.--Subsections (a) and (b) of section 1250 
(relating to gain from disposition of certain depreciable realty) are 
amended to read as follows:
    ``(a) General Rule.--Except as otherwise provided in this section, 
if section 1250 property is disposed of, the lesser of--
            ``(1) the depreciation adjustments in respect of such 
        property, or
            ``(2) the excess of--
                    ``(A) the amount realized (or, in the case of a 
                disposition other than a sale, exchange, or involuntary 
                conversion, the fair market value of such property), 
                over
                    ``(B) the adjusted basis of such property,
shall be treated as gain which is ordinary income. Such gain shall be 
recognized notwithstanding any other provision of this subtitle.
    ``(b) Depreciation Adjustments.--For purposes of this section, the 
term `depreciation adjustments' means, in respect of any property, all 
adjustments attributable to periods after December 31, 1963, reflected 
in the adjusted basis of such property on account of deductions 
(whether in respect of the same or other property) allowed or allowable 
to the taxpayer or to any other person for exhaustion, wear and tear, 
obsolescence, or amortization (other than amortization under section 
169, 185 (as in effect before its repeal by the Tax Reform Act of 
1986), 188 (as in effect before its repeal by the Revenue 
Reconciliation Act of 1990), 190, or 193). For purposes of the 
preceding sentence, if the taxpayer can establish by adequate records 
or other sufficient evidence that the amount allowed as a deduction for 
any period was less than the amount allowable, the amount taken into 
account for such period shall be the amount allowed.''
    (b) Limitation in Case of Installment Sales.--Subsection (i) of 
section 453 is amended--
            (1) by striking ``1250'' the first place it appears and 
        inserting ``1250 (as in effect on the day before the date of 
        the enactment of the Capital Gains Tax Fairness Act of 1993)'', 
        and
            (2) by striking ``1250'' the second place it appears and 
        inserting ``1250 (as so in effect)''.
    (c) Conforming Amendments.--
            (1) Subparagraph (E) of section 1250(d)(4) is amended--
                    (A) by striking ``additional depreciation'' and 
                inserting ``amount of the depreciation adjustments'', 
                and
                    (B) by striking ``Additional depreciation'' in the 
                subparagraph heading and inserting ``Depreciation 
                adjustments''.
            (2) Subparagraph (B) of section 1250(d)(6) is amended to 
        read as follows:
                    ``(B) Depreciation adjustments.--In respect of any 
                property described in subparagraph (A), the amount of 
                the depreciation adjustments attributable to periods 
                before the distribution by the partnership shall be--
                            ``(i) the amount of gain to which 
                        subsection (a) would have applied if such 
                        property had been sold by the partnership 
                        immediately before the distribution at its fair 
                        market value at such time, reduced by
                            ``(ii) the amount of such gain to which 
                        section 751(b) applied.''
            (3) Subsection (d) of section 1250 is amended by striking 
        paragraph (10).
            (4) Section 1250 is amended by striking subsections (e) and 
        (f) and by redesignating subsections (g) and (h) as subsections 
        (e) and (f), respectively.
            (5) Paragraph (4) of section 50(c) is amended to read as 
        follows:
            ``(4) Recapture of reduction.--For purposes of sections 
        1245 and 1250, any reduction under this subsection shall be 
        treated as a deduction allowed for depreciation.''
            (6) Clause (i) of section 267(e)(5)(D) is amended by 
        striking ``section 1250(a)(1)(B)'' and inserting ``section 
        1250(a)(1)(B) (as in effect on the day before the date of the 
        enactment of the Capital Gains Tax Fairness Act of 1993)''.
            (7)(A) Subsection (a) of section 291 is amended by striking 
        paragraph (1) and by redesignating paragraphs (2), (3), (4), 
        and (5) as paragraphs (1), (2), (3), and (4), respectively.
            (B) Subsection (c) of section 291 is amended to read as 
        follows:
    ``(c) Special Rule for Pollution Control Facilities.--Section 168 
shall apply with respect to that portion of the basis of any property 
not taken into account under section 169 by reason of subsection 
(a)(4).''
            (C) Section 291 is amended by striking subsection (d) and 
        redesignating subsection (e) as subsection (d).
            (D) Paragraph (2) of section 291(d) (as redesignated by 
        subparagraph (C)) is hereby repealed.
            (E) Subparagraph (A) of section 265(b)(3) is amended by 
        striking ``291(e)(1)(B)'' and inserting ``291(d)(1)(B)''.
            (F) Subsection (c) of section 1277 is amended by striking 
        ``291(e)(1)(B)(ii)'' and inserting ``291(d)(1)(B)(ii)''.
            (8) Subsection (d) of section 1017 is amended to read as 
        follows:
    ``(d) Recapture of Deductions.--For purposes of sections 1245 and 
1250--
            ``(1) any property the basis of which is reduced under this 
        section and which is neither section 1245 property nor section 
        1250 property shall be treated as section 1245 property, and
            ``(2) any reduction under this section shall be treated as 
        a deduction allowed for depreciation.''
            (9) Paragraph (5) of section 7701(e) is amended by striking 
        ``(relating to low-income housing)'' and inserting ``(as in 
        effect on the day before the date of the enactment of the 
        Capital Gains Tax Fairness Act of 1993)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to dispositions made on or after January 27, 1993, in taxable 
years ending on or after such date.

                                 <all>

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