[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 818 Introduced in Senate (IS)]







107th CONGRESS
  1st Session
                                 S. 818

   To amend the Internal Revenue Code of 1986 to provide a long-term 
  capital gains exclusion for individuals, and to reduce the holding 
period for long-term capital gain treatment to 6 months, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 2, 2001

  Mr. Hatch (for himself, Mr. Torricelli, Mr. Kyl, and Mr. Murkowski) 
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 long-term 
  capital gains exclusion for individuals, and to reduce the holding 
period for long-term capital gain treatment to 6 months, 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.

    This Act may be cited as the ``Capital Gains Relief and 
Simplification Act of 2001''.

SEC. 2. LONG-TERM CAPITAL GAINS DEDUCTION FOR INDIVIDUALS.

    (a) General Rule.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by redesignating section 1202 as section 1203 and by 
inserting after section 1201 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 lesser of--
                    ``(A) the net capital gain of the taxpayer for the 
                taxable year, or
                    ``(B) $1,000 ($2,000 in the case of a joint 
                return), and
            ``(2) 50 percent of such gain not taken into account under 
        paragraph (1).
    ``(b) Sales Between Related Parties.--Gains from sales and 
exchanges to any related person (within the meaning of section 267(b) 
or 707(b)(1)) shall not be taken into account in determining net 
capital gain.
    ``(c) Special Rule for Section 1250 Property.--Solely for purposes 
of this section, in applying section 1250 to any disposition of section 
1250 property, all depreciation adjustments in respect of the property 
shall be treated as additional depreciation.
    ``(d) Section Not To Apply to Certain Taxpayers.--No deduction 
shall be allowed under this section to--
            ``(1) an 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,
            ``(2) a married individual (within the meaning of section 
        7703) filing a separate return for the taxable year, or
            ``(3) an estate or trust.
    ``(e) Special Rule for Pass-Thru Entities.--
            ``(1) In general.--In applying this section with respect to 
        any pass-thru entity, the determination of when the sale or 
        exchange occurs shall be made at the entity level.
            ``(2) Pass-thru entity defined.--For purposes of paragraph 
        (1), the term `pass-thru entity' means--
                    ``(A) a regulated investment company,
                    ``(B) a real estate investment trust,
                    ``(C) an S corporation,
                    ``(D) a partnership,
                    ``(E) an estate or trust, and
                    ``(F) a common trust fund.''
    (b) Coordination With Maximum Capital Gains Rate.--
            (1) In general.--Paragraph (3) of section 1(h) of the 
        Internal Revenue Code of 1986 (relating to maximum capital 
        gains rate) is amended to read as follows:
            ``(3) Coordination with other provisions.--For purposes of 
        this subsection, the amount of the net capital gain shall be 
        reduced (but not below zero) by the sum of--
                    ``(A) the amount of the net capital gain taken into 
                account under section 1202(a) for the taxable year, 
                plus
                    ``(B) the amount which the taxpayer elects to take 
                into account as investment income for the taxable year 
                under section 163(d)(4)(B)(iii).''
            (2) Conforming amendments.--Paragraphs (5)(A)(ii), (8), and 
        (9) of section 1(h) of such Code are amended by striking 
        ``1202'' each place it appears and inserting ``1203''.
    (c) Deduction Allowable in Computing Adjusted Gross Income.--
Subsection (a) of section 62 (defining adjusted gross income) is 
amended by inserting after paragraph (17) the following new paragraph:
            ``(18) Long-term capital gains.--The deduction allowed by 
        section 1202.''
    (d) Treatment of Collectibles.--
            (1) In general.--Section 1222 of the Internal Revenue Code 
        of 1986 (relating to other terms relating to capital gains and 
        losses) 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 interest in 
                partnership, 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) of such Code is 
                amended by adding at the end 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) of such 
                Code is amended by inserting before the period at the 
                end the following: ``and section 1222 shall be applied 
                without regard to paragraph (12) thereof (relating to 
                special rule for collectibles)''.
    (e) Conforming Amendments.--
            (1) Section 57(a)(7) of the Internal Revenue Code of 1986 
        is amended by striking ``1202'' and inserting ``1203''.
            (2) Clause (iii) of section 163(d)(4)(B) of such Code is 
        amended to read as follows:
                            ``(iii) the sum of--
                                    ``(I) the portion of the net 
                                capital gain referred to in clause 
                                (ii)(II) (or, if lesser, the net 
                                capital gain referred to in clause 
                                (ii)(I)) taken into account under 
                                section 1202, reduced by the amount of 
                                the deduction allowed with respect to 
                                such gain under section 1202, plus
                                    ``(II) so much of the gain 
                                described in subclause (I) which is not 
                                taken into account under section 1202 
                                and which the taxpayer elects to take 
                                into account under this clause.''
            (3) Subparagraph (B) of section 172(d)(2) of such Code is 
        amended to read as follows:
                    ``(B) the deduction under section 1202 and the 
                exclusion under section 1203 shall not be allowed.''
            (4) Section 642(c)(4) of such Code is amended by striking 
        ``1202'' both places it appears and inserting ``1203''.
            (5) Section 643(a)(3) of such Code is amended by striking 
        ``1202'' and inserting ``1203''.
            (6) Paragraph (4) of section 691(c) of such Code is amended 
        inserting ``1203,'' after ``1202,''.
            (7) The second sentence of section 871(a)(2) of such Code 
        is amended by inserting ``or 1203'' after ``section 1202''.
            (8) The last sentence of section 1044(d) of such Code is 
        amended by striking ``1202'' and inserting ``1203''.
            (9) Paragraphs (1), (4)(B), and (5) of section 1045(b) of 
        such Code are amended by striking ``1202'' each place it 
        appears and inserting ``1203''.
            (10) Section 1397B(b)(4) of such Code is amended by 
        striking ``1202'' and inserting ``1203''.
            (11) Section 1400B(b)(2)(B) of such Code is amended by 
        striking ``section 1202(c)(3)'' and inserting ``section 
        1203(c)(3)''.
            (12) Section 1400B(f) of such Code is amended by striking 
        ``section 1202'' and inserting ``section 1203''.
            (13) Paragraph (1) of section 1402(i) of such Code is 
        amended by inserting ``, and the deduction provided by section 
        1202 and the exclusion provided by section 1203 shall not 
        apply'' before the period at the end.
            (14) Section 6652(k) of such Code is amended by striking 
        ``1202'' both places it appears and inserting ``1203''.
            (15) Section 121 of such Code is amended by adding at the 
        end the following new subsection:
    ``(h) Cross Reference.--

                                ``For treatment of eligible gain not 
excluded under subsection (a), see section 1202.''
            (16) Section 1203 of such Code, as redesignated by 
        subsection (a), is amended by adding at the end the following 
        new subsection:
    ``(l) Cross Reference.--

                                ``For treatment of eligible gain not 
excluded under subsection (a), see section 1202.''
            (17) The table of sections for part I of subchapter P of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1202 and by inserting after the item relating to 
        section 1201 the following new items:

                              ``Sec. 1202. Capital gains deduction.
                              ``Sec. 1203. 50-percent exclusion for 
                                        gain from certain small 
                                        business stock.''
    (f) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2001.
            (2) Collectibles.--The amendments made by subsection (d) 
        shall apply to sales and exchanges after December 31, 2001.

SEC. 3. DECREASE IN HOLDING PERIOD REQUIRED FOR LONG-TERM CAPITAL GAIN 
              TREATMENT.

    (a) In General.--
            (1) Capital gain.--Paragraphs (1) and (3) of section 1222 
        of the Internal Revenue Code of 1986 (relating to other terms 
        relating to capital gains and losses) are each amended by 
        striking ``1 year'' and inserting ``6 months''.
            (2) Capital losses.--Paragraphs (2) and (4) of section 1222 
        of such Code are each amended by striking ``1 year'' and 
        inserting ``6 months''.
    (b) Conforming Amendments.--The following provisions of the 
Internal Revenue Code of 1986 are each amended by striking ``1 year'' 
each place it appears and inserting ``6 months'':
            (1) Section 1(h)(6)(A).
            (2) Section 166(d)(1)(B).
            (3) Section 422(a)(1).
            (4) Section 423(a)(1).
            (5) Section 584(c).
            (6) Subsections (b) and (c) of section 631.
            (7) Section 642(c)(3).
            (8) Paragraphs (1) and (2) of section 702(a).
            (9) Section 818(b)(1).
            (10) Section 852(b)(3)(B).
            (11) Section 857(b)(3)(B).
            (12) Paragraphs (11) and (12) of section 1223.
            (13) Section 1231.
            (14) Subsections (b), (d), and (e)(4)(A) of section 1233.
            (15) Section 1234(b)(1).
            (16) Section 1235(a).
            (17) Section 1246(a)(4).
            (18) Section 1247(i).
            (19) Subsections (b) and (g)(2)(C) of section 1248.
    (c) Technical Amendment.--The first sentence of section 631(a) of 
the Internal Revenue Code of 1986 is amended by striking ``for a period 
of more than one year'' and inserting ``on the first day of such year 
and for a period of more than 6 months before such cutting''.
    (d) Effective Date.--The amendments made by this section shall 
apply to dispositions after December 31, 2001.

SEC. 4. TREATMENT OF CAPITAL LOSSES OF TAXPAYERS OTHER THAN 
              CORPORATIONS.

    (a) Increase in Limitation on Losses Allowable Against Ordinary 
Income.--Section 1211(b)(1) of the Internal Revenue Code of 1986 
(relating to limitation on capital losses of taxpayers other than 
corporations) is amended--
            (1) by striking ``$3,000'' and inserting ``$10,000'', and
            (2) by striking ``$1,500'' and inserting ``an amount equal 
        to one-half of such amount (as in effect for the taxable 
        year)''.
    (b) Indexing of Amount.--Section 1211 of the Internal Revenue Code 
of 1986 is amended by adding at the end the following:
    ``(c) Cost-of-Living Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning after 2001, the $10,000 amount referred to in 
        subsection (b)(1) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section (1)(f)(3) for the calendar year in which 
                the taxable year begins, by substituting `2000' for 
                `1992'.
            ``(2) Rounding.--If any amount as adjusted under paragraph 
        (1) is not a multiple of $100, such amount shall be rounded to 
        the nearest multiple of $100.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to capital losses arising in taxable years beginning after 
December 31, 2000.

SEC. 5. MODIFICATION OF EXCLUSION OF CAPITAL GAINS ON SALE OF PRINCIPAL 
              RESIDENCE.

    (a) Special Rule for Members of Uniformed Services and Foreign 
Service, and Other Employees, in Determining Exclusion.--
            (1) In general.--Subsection (d) of section 121 of the 
        Internal Revenue Code of 1986 (relating to exclusion of gain 
        from sale of principal residence) is amended by adding at the 
        end the following new paragraphs:
            ``(9) Members of uniformed services and foreign service.--
                    ``(A) In general.--The running of the 5-year period 
                described in subsection (a) shall be suspended with 
                respect to an individual during any time that such 
                individual or such individual's spouse is serving on 
                qualified official extended duty as a member of the 
                uniformed services or of the Foreign Service.
                    ``(B) Qualified official extended duty.--For 
                purposes of this paragraph--
                            ``(i) In general.--The term `qualified 
                        official extended duty' means any period of 
                        extended duty as a member of the uniformed 
                        services or a member of the Foreign Service 
                        during which the member serves at a duty 
                        station which is at least 50 miles from such 
                        property or is under Government orders to 
                        reside in Government quarters.
                            ``(ii) Uniformed services.--The term 
                        `uniformed services' has the meaning given such 
                        term by section 101(a)(5) of title 10, United 
                        States Code, as in effect on the date of the 
                        enactment of the Taxpayer Refund and Relief Act 
                        of 1999.
                            ``(iii) Foreign service of the united 
                        states.--The term `member of the Foreign 
                        Service' has the meaning given the term `member 
of the Service' by paragraph (1), (2), (3), (4), or (5) of section 103 
of the Foreign Service Act of 1980, as in effect on the date of the 
enactment of the Taxpayer Refund and Relief Act of 1999.
                            ``(iv) Extended duty.--The term `extended 
                        duty' means any period of active duty pursuant 
                        to a call or order to such duty for a period in 
                        excess of 90 days or for an indefinite period.
            ``(10) Other employees.--
                    ``(A) In general.--The running of the 5-year period 
                described in subsection (a) shall be suspended with 
                respect to an individual during any time that such 
                individual or such individual's spouse is serving as an 
                employee for a period in excess of 90 days in an 
                assignment by such employee's employer outside the 
                United States.
                    ``(B) Limitations and special rules.--
                            ``(i) Maximum period of suspension.--The 
                        suspension under subparagraph (A) with respect 
                        to a principal residence shall not exceed (in 
                        the aggregate) 5 years.
                            ``(ii) Members of uniformed services and 
                        foreign service.--Subparagraph (A) shall not 
                        apply to an individual to whom paragraph (9) 
                        applies.
                            ``(iii) Self-employed individual not 
                        considered an employee.--For purposes of this 
                        paragraph, the term `employee' does not include 
                        an individual who is an employee within the 
                        meaning of section 401(c)(1) (relating to self-
                        employed individuals).''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to sales and exchanges after the date of the 
        enactment of this Act.
    (b) Indexing of Exclusion.--
            (1) In general.--Section 121(b)(1) of the Internal Revenue 
        Code of 1986 (relating to limitations) is amended by striking 
        ``$250,000'' and inserting ``applicable amount''.
            (2) Applicable amount.--Section 121(b) of such Code is 
        amended by adding at the end the following new paragraph:
            ``(4) Applicable amount.--
                    ``(A) In general.--For purposes of this section, 
                the term `applicable amount' means $250,000.
                    ``(B) Inflation adjustment.--
                            ``(i) In general.--In the case of a taxable 
                        year beginning in any calendar year after 2001, 
                        the $250,000 amount under subparagraph (a) 
                        shall be increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 2000' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $1,000, 
                        such amount shall be rounded to the next lowest 
                        multiple of $1,000.''.
            (2) Conforming amendments.--Section 121(b)(2)(A) of such 
        Code (relating to $500,000 limitation for certain joint 
        returns) is amended--
                    (A) by striking ``substituting'' and all that 
                follows through ``if'' and inserting ``substituting an 
                amount equal to 200 percent of the applicable amount in 
                effect under such paragraph for the taxable year for 
                `the applicable amount' if'', and
                    (B) by striking ``$500,000'' in the heading and 
                inserting ``Increased''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after December 31, 2001.
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