Reforestation Tax Act of 1993

Summary: Reforestation Tax Act of 1993 - Amends the Internal Revenue Code to provide taxpayers a partial inflation adjustment for the deduction from gross income for qualified timber gain.  Allows such deduction in computing adjusted gross income. 
Excludes from conditions of the material participation rules, for purposes of the passive loss limitations, closely held timber activity if the aggregate hours devoted to management of the activity for any year is generally fewer than 100 hours. 
Increases the amount allowable as a deduction for amortization of reforestation expenditures and provides an inflation adjustment after calendar year 1994.  Applies such inflation adjustment to the reforestation credit.  Shortens the amortization period from 84 to 60 months.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Reforestation Tax Act of 1993''.

SEC. 2. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.

    (a) In General.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by adding at the end the following new section:

``SEC. 1202. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.

    ``(a) In General.--At the election of any taxpayer who has 
qualified timber gain for any taxable year, there shall be allowed as a 
deduction from gross income an amount equal to the qualified percentage 
of such gain.
    ``(b) Qualified Timber Gain.--For purposes of this section, the 
term `qualified timber gain' means the lesser of--
            ``(1) the net capital gain for the taxable year, or
            ``(2) the net capital gain for the taxable year determined 
        by taking into account only gains and losses from timber.
    ``(c) Qualified Percentage.--For purposes of this section, the term 
`qualified percentage' means the percentage (not exceeding 50 percent) 
determined by multiplying--
            ``(1) 3 percent, by
            ``(2) the number of years in the holding period of the 
        taxpayer with respect to the timber.
    ``(d) Estates and Trusts.--In the case of an estate or trust, the 
deduction under subsection (a) shall be computed by excluding the 
portion (if any) of the gains for the taxable year from sales or 
exchanges of capital assets which, under sections 652 and 662 (relating 
to inclusions of amounts in gross income of beneficiaries of trusts), 
is includible by the income beneficiaries as gain derived from the sale 
or exchange of capital assets.''.
    (b) Coordination With Existing Limitations.--
            (1) Subsection (h) of section 1 of such Code (relating to 
        maximum capital gains rate) is amended by inserting after ``net 
        capital gain'' each place it appears the following: ``(other 
        than qualified timber gain with respect to which an election is 
        made under section 1202)''.
            (2) Subsection (a) of section 1201 of such Code (relating 
        to alternative tax for corporations) is amended by inserting 
        after ``net capital gain'' each place it appears the following: 
        ``(other than qualified timber gain with respect to which an 
        election is made under section 1202)''.
    (c) Allowance of Deduction in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (relating to definition of 
adjusted gross income) is amended by adding after paragraph (14) the 
following new paragraph:
            ``(15) Partial inflation adjustment for timber.--The 
        deduction allowed by section 1202.''.
    (d) Conforming Amendment.--The table of sections for part I of 
subchapter P of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 1202. Partial inflation adjustment 
                                        for timber.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges after December 31, 1992.

SEC. 3. APPLICATION OF PASSIVE LOSS LIMITATIONS TO TIMBER ACTIVITIES.

    (a) In General.--Treasury regulations sections 1.469-5T(b)(2) (ii) 
and (iii) shall not apply to any closely held timber activity if the 
nature of such activity is such that the aggregate hours devoted to 
management of the activity for any year is generally less than 100 
hours.
    (b) Definitions.--For purposes of subsection (a)--
            (1) Closely held activity.--An activity shall be treated as 
        closely held if at least 80 percent of the ownership interests 
        in the activity is held--
                    (A) by 5 or fewer individuals, or
                    (B) by individuals who are members of the same 
                family (within the meaning of section 2032A(e)(2) of 
                the Internal Revenue Code of 1986).
        An interest in a limited partnership shall in no event be 
        treated as a closely held activity for purposes of this 
        section.
            (2) Timber activity.--The term ``timber activity'' means 
        the planting, cultivating, caring, cutting, or preparation 
        (other than milling) for market, of trees.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1992.

SEC. 4. AMORTIZATION OF REFORESTATION EXPENDITURES AND REFORESTATION 
              TAX CREDIT.

    (a) Increase in Maximum Amortizable Amount.--
            (1) In general.--Paragraph (1) of section 194(b) of the 
        Internal Revenue Code of 1986 (relating to maximum dollar 
        amount) is amended by striking ``$10,000 ($5,000'' and 
        inserting ``$20,000 ($10,000''.
            (2) Inflation adjustment.--Subsection (b) of section 194 of 
        such Code (relating to limitations) is amended by redesignating 
        paragraphs (2), (3), and (4) as paragraphs (3), (4), and (5), 
        respectively, and by inserting after paragraph (1) the 
        following new paragraph:
            ``(2) Inflation adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 1993, each dollar 
                amount contained in paragraph (1) shall be increased by 
                an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment under 
                        section 1(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `calendar year 1992' for `calendar 
                        year 1989' in subparagraph (B) of such section.
                    ``(B) Rounding.--If any increase determined under 
                subparagraph (A) is not a multiple of $50, such amount 
                shall be rounded to the next lowest multiple of $50.''.
            (3) Applicability to reforestation credit.--Paragraph (1) 
        of section 48(b) of such Code (relating to reforestation 
        credit) is amended by striking ``section 194(b)(1)'' and 
        inserting ``paragraphs (1) and (2) of section 194(b)''.
    (b) Decrease in Amortization Period.--
            (1) In general.--Section 194(a) of such Code is amended by 
        striking ``84 months'' and inserting ``60 months''.
            (2) Conforming amendment.--Section 194(a) of such Code is 
        amended by striking ``84-month period'' and inserting ``60-
        month period''.
    (c) Availability of Deduction and Credit to Trusts.--Subsection (b) 
of section 194 of such Code (as amended by subsection (a)(2) of this 
section) is amended--
            (1) by striking paragraph (4),
            (2) in paragraph (5)--
                    (A) by inserting ``and trusts'' after ``Estates'', 
                and
                    (B) by inserting ``and trusts'' after ``estates'', 
                and
            (3) by redesignating paragraph (5) as paragraph (4).
    (d) Effective Date.--
            (1) Amortization provisions.--Except as provided in 
        paragraph (2), the amendments made by this section shall apply 
        to additions to capital account made after December 31, 1992.
            (2) Tax credit provisions.--In the case of the 
        reforestation credit under section 48(b) of the Internal 
        Revenue Code of 1986, the amendments made by this section shall 
        apply to property acquired after December 31, 1992.