Citizens' Tax Relief Act of 1994

Summary: Citizens' Tax Relief Act of 1994 - Amends the Internal Revenue Code to reduce the lowest rate of income tax imposed on taxpayers other than corporations. 
Repeals the rule relating to determining the basis of property acquired from a decedent.  Provides for determining such basis under rules applicable to gifts and transfers in trusts.  Revises and reduces the current maximum capital gains tax on inherited property. 
Allows an exclusion of gain from gross income from the sale of a principal residence acquired from a decedent.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Citizens' Tax Relief Act of 1994''.

SEC. 2. REDUCTION OF LOWEST RATE OF INCOME TAX IMPOSED ON TAXPAYERS 
              OTHER THAN CORPORATIONS.

    (a) In General.--Each of the tables contained in subsections (a), 
(b), (c), (d), and (e) of section 1 of the Internal Revenue Code of 
1986 is amended by striking ``15%'' and inserting ``12.5%''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1994.
    (c) Section 15 Not To Apply.--The amendment made by subsection (a) 
shall not be treated as a change in the rate of a tax imposed by 
chapter 1 of the Internal Revenue Code of 1986 for purposes of section 
15 of such Code.

SEC. 3. REPEAL OF INCREASE IN BASIS OF PROPERTY ACQUIRED FROM A 
              DECEDENT.

    (a) In General.--Section 1014 of the Internal Revenue Code of 1986 
(relating to basis of property acquired from a decedent) is hereby 
repealed.
    (b) Basis To Be Determined Under Rules Applicable to Gifts.--
Section 1015 of such Code (relating to basis of property acquired by 
gifts and transfers in trusts) is amended by adding at the end the 
following new subsection:
    ``(f) Property Acquired From or Passing From a Decedent.--
            ``(1) In general.--Property acquired from a decedent dying 
        after December 31, 1994, or passed from such a decedent shall 
        be treated for purposes of subsection (a) as acquired by gift 
        for purposes of this section.
            ``(2) Property acquired from a decedent.--Section 1014(b) 
        (as in effect on the day before the date of the enactment of 
        the Citizens' Tax Relief Act of 1994) shall apply for purposes 
        of whether property is considered to have been acquired from or 
        to have passed from the decedent.
            ``(3) Increase in basis for estate tax paid.--
                    ``(A) In general.--The basis of any property which 
                this subsection applies shall be the basis determined 
                under subsection (a) increased by the portion of the 
                aggregate death tax adjustment which is allocated to 
                the property pursuant to this paragraph.
                    ``(B) Limitation.--The death tax adjustment for any 
                property shall not exceed--
                            ``(i) the net appreciation in such 
                        property, multiplied by
                            ``(ii) the Federal marginal estate tax 
                        rate.
                    ``(C) Net appreciation.--For purposes of this 
                paragraph, the net appreciation in value of any 
                property is the amount by which--
                            ``(i) the fair market value of such 
                        property, exceeds
                            ``(ii) the initial basis of such property 
                        increased by the minimum basis adjustment of 
                        such property.
            ``(4) Aggregate death tax adjustment.--In the case of any 
        estate--
                    ``(A) In general.--The aggregate death tax 
                adjustment is the product of--
                            ``(i) the aggregate net appreciation of all 
                        properties which have net appreciation, and
                            ``(ii) the Federal marginal estate tax 
                        rate.
                    ``(B) Limitation.--The amount taken into account 
                under subparagraph (A)(i) shall not exceed the taxable 
                estate.
                    ``(C) Federal marginal estate tax rate.--The term 
                `Federal marginal estate tax rate' means the highest 
                rate in the rate schedule set forth in section 
                2001(c)--
                            ``(i) which is used in determining the 
                        tentative tax under section 2001(b)(1) with 
                        respect to the estate of the decedent, and
                            ``(ii) the amount subject to which is at 
                        least $50,000.
                In no event shall the Federal marginal estate tax rate 
                be less than 30 percent.
            ``(5) Allocation rules.--The executor shall allocate the 
        adjustments under this subsection among the properties on the 
        return of the tax imposed by chapter 11.''.
    (c) Conforming Amendments.--
            (1) The table of sections for part II of subchapter O of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1014.
            (2) The heading of section 1015 of such Code is amended to 
        read as follows:

``SEC. 1015. BASIS OF PROPERTY ACQUIRED BY GIFT, FROM A DECEDENT, OR 
              TRANSFERRED IN TRUST.''.

            (3) The table of sections for part II of subchapter O of 
        chapter 1 of such Code is amended by striking the item relating 
        to section 1015 and inserting the following new item:

                              ``Sec. 1015. Basis of property acquired 
                                        by gift, from a decedent, or 
                                        transferred in trust.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to decedents dying after December 31, 1994.

SEC. 4. PHASEIN OF CAPITAL GAINS TAX ON INHERITED PROPERTY.

    (a) In General.--Subsection (h) of section 1 of the Internal 
Revenue Code of 1986 (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 equal to the sum of--
                            ``(i) the applicable percentage of so much 
                        of such net capital gain as is attributable to 
                        property acquired by the taxpayer from a 
                        decedent dying after December 31, 1994 (or 
                        passed to the taxpayer from such a decedent), 
                        and
                            ``(ii) 28 percent of the amount of the 
                        taxable income in excess of the sum of the 
                        amount determined under subparagraph (A) and 
                        the net capital gain described in clause (i) of 
                        this subparagraph.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means--
                    ``(A) 10 percent in the case of taxable years 
                beginning after December 31, 1993, and before January 
                1, 1996,
                    ``(B) 15 percent in the case of taxable years 
                beginning during 1996,
                    ``(C) 20 percent in the case of taxable years 
                beginning during 1997, and
                    ``(D) 25 percent in the case of taxable years 
                beginning during 1998.
            ``(3) Election to mark-to-market property acquired from a 
        decedent.--If the taxpayer elects this paragraph with respect 
        to any property described in paragraph (1)(B)(i), such property 
        shall be treated as sold (for its fair market value as of the 
        first day of the taxpayer year) and any gain or loss shall be 
        treated as received or accrued on such day.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after December 31, 1994.

SEC. 5. ADDITIONAL EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE 
              ACQUIRED FROM A DECEDENT.

    (a) In General.--Subsection (d) of section 121 of the Internal 
Revenue Code of 1986 (relating to one-time exclusion of gain from sale 
of principal residence by individual who has attained age 55) is 
amended by adding at the end the following new paragraph:
            ``(10) Special rules for residence acquired from 
        decedent.--
                    ``(A) In general.--In the case of a residence which 
                was acquired by the taxpayer from a decedent dying 
                after December 31, 1994, or to whom such residence 
                passed from such a decedent (within the meaning of 
                section 1015(f)(2))--
                            ``(i) subsection (a)(1) shall not apply, 
                        and
                            ``(ii) the requirement of subsection (a)(2) 
                        shall be treated as met if the decedent 
                        satisfied such requirement as of the date of 
                        death or the taxpayer satisfies such 
                        requirement.
                    ``(B) Additional election.--Any election under this 
                section with respect to any residence to which 
                subparagraph (A) applies shall not be taken into 
                account in determining whether any other election may 
                be made under this section.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to sales and exchanges after December 31, 1994, in taxable years ending 
after such date.