To amend the Internal Revenue Code of 1986 to reduce the estate tax for periods before its termination in 2010 by increasing the unified credit, lowering the maximum estate tax rate, restoring the exclusion for family-owned business interests, excluding the value of the decedent's principal residence, and for other purposes.

Summary: Family Farm, Small Business, and Home Tax Relief Act - Amends the Internal Revenue Code to: (1) accelerate from 2009 to 2008 the $3.5 million unified estate tax credit and adjust such credit amount for inflation in calendar years after 2008; (2) reduce the maximum estate tax rate from 49 to 43% in 2008; (3) restore and increase to $8 million the estate tax deduction for family-owned business interests and adjust such deduction amount for inflation after 2008; (4) accelerate from 2010 to 2008 the repeal of the tax on generation-skipping transfers; and (5) allow an exclusion, in calculating the gross estate for estate tax purposes, of the adjusted value of a decedent's principal residence, up to $2 million.

SECTION 1. SHORT TITLE.

    (a) In General.--This Act may be cited as the ``Family Farm, Small 
Business, and Home Tax Relief Act''.
    (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.

SEC. 2. ACCELERATION OF INCREASE IN UNIFIED CREDIT.

    (a) In General.--Subsection (c) of section 2010 (relating to 
unified credit against tax) is amended to read as follows:
    ``(c) Applicable Credit Amount.--
            ``(1) In general.--For purposes of this section, the 
        applicable credit amount is the amount of the tentative tax 
        which would be determined under the rate schedule set forth in 
        section 2001(c) if the amount with respect to which such 
        tentative tax is to be computed were the applicable exclusion 
        amount. For purposes of the preceding sentence, the applicable 
        exclusion amount is $3,500,000.
            ``(2) Cost-of-living adjustment.--In the case of any 
        decedent dying in a calendar year after 2008, the $3,500,000 
        amount in paragraph (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 such calendar year by 
                substituting `calendar year 2006' for `calendar year 
                1992' in subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $1,000, such amount shall be rounded to the nearest 
        multiple of $1,000.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying, and gifts made, after December 31, 2007.

SEC. 3. ACCELERATION OF REDUCTION IN MAXIMUM ESTATE TAX RATE.

    (a) Maximum Estate Tax Rate.--
            (1) The table contained in paragraph (1) of section 2001(c) 
        is amended by striking the 2 highest brackets.
            (2) Section 2001(c), as amended by paragraph (1), is 
        amended by striking ``(1) In general.--'' and by striking 
        paragraph (2).
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2007.

SEC. 4. RESTORATION OF, AND INCREASE IN, DEDUCTION FOR FAMILY-OWNED 
              BUSINESS INTERESTS.

    (a) Restoration.--Subsection (j) of section 2057 (relating to 
termination) is amended to read as follows:
    ``(j) Application of Section.--This section--
            ``(1) shall not apply to estates of decedents dying after 
        December 31, 2003, and before January 1, 2008, but
            ``(2) shall apply to estates of decedents dying after 
        December 31, 2007.''.
    (b) Increase.--
            (1) In general.--Subsection (a) of section 2057 is 
        amended--
                    (A) by striking ``$675,000'' in paragraph (2) and 
                inserting ``$8,000,000'', and
                    (B) by striking paragraph (3).
            (2) Cost-of-living adjustment.--Subsection (a) of section 
        2057 is amended by adding at the end the following new 
        paragraph:
            ``(3) Cost-of-living adjustment.--In the case of any 
        decedent dying in a calendar year after 2008, the $8,000,000 
        amount in paragraph (2) 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 such calendar year by 
                substituting `calendar year 2006' for `calendar year 
                1992' in subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $10,000, such amount shall be rounded to the 
        nearest multiple of $10,000.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2007.

SEC. 5. ACCELERATION OF REPEAL OF TAX ON GENERATION-SKIPPING TRANSFERS.

    Section 2664 (relating to termination) is amended by striking 
``December 31, 2009'' and inserting ``December 31, 2007''.

SEC. 6. EXCLUSION FROM GROSS ESTATE OF VALUE OF PRINCIPAL RESIDENCE.

    (a) In General.--Subchapter A of chapter 11 is amended by adding at 
the end the following new section:

``SEC. 2059. PRINCIPAL RESIDENCE.

    ``(a) In General.--For purposes of the tax imposed by section 2001, 
in the case of a decedent who was (at the date of the decedent's death) 
a citizen or resident of the United States, the value of the taxable 
estate shall be determined by deducting from the value of the gross 
estate the adjusted value of any residence if--
            ``(1) such residence is included in determining the value 
        of the gross estate,
            ``(2) such residence is located in the United States, and
            ``(3) during the 8-year period ending on the date of the 
        decedent's death, there have been periods aggregating 5 years 
        during which such residence was owned by the decedent or a 
        member of the decedent's family and used by the decedent or 
        such a member as their principal residence (within the meaning 
        of section 121).
    ``(b) Limitation.--
            ``(1) In general.--The deduction allowed by this section 
        shall not exceed $2,000,000.
            ``(2) Cost-of-living adjustment.--In the case of any 
        decedent dying in a calendar year after 2008, the $2,000,000 
        amount in paragraph (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 such calendar year by 
                substituting `calendar year 2006' for `calendar year 
                1992' in subparagraph (B) thereof.
        If any amount as adjusted under the preceding sentence is not a 
        multiple of $1,000, such amount shall be rounded to the nearest 
        multiple of $1,000.
    ``(c) Adjusted Value.--For purposes of this section, the adjusted 
value of property is the value of such property for purposes of this 
chapter, reduced by amounts allowable as a deduction in respect to such 
property under paragraph (4) of section 2053(a).
    ``(d) Qualified Heir; Member of the Family.--For purposes of this 
section, the terms `qualified heir' and `member of the family' have the 
respective meanings given to such terms by section 2032A(e).''.
    (b) Clerical Amendment.--The table of sections for subchapter A of 
chapter 11 is amended by adding at the end the following new item:

``Sec. 2059. Principal residence.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2007.