A bill to amend the Internal Revenue Code of 1986 to allow a deduction for qualified timber gains.

Summary: Timber Tax Act of 2005 - Amends the Internal Revenue Code to allow a tax deduction (available to taxpayers whether or not they itemize deductions) for up to 60% of gains from certain sales or exchanges of timber.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Timber Tax Act of 2005''.

SEC. 2. DEDUCTION FOR QUALIFIED TIMBER GAIN.

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

``SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN.

    ``(a) In General.--In the case of a taxpayer which elects the 
application of this section for a taxable year, there shall be allowed 
a deduction against gross income equal to 60 percent of the lesser of--
            ``(1) the taxpayer's qualified timber gain for such year, 
        or
            ``(2) the taxpayer's net capital gain for such year.
    ``(b) Qualified Timber Gain.--For purposes of this section, the 
term `qualified timber gain' means, with respect to any taxpayer for 
any taxable year, the excess (if any) of--
            ``(1) the sum of the taxpayer's gains described in 
        subsections (a) and (b) of section 631 for such year, over
            ``(2) the sum of the taxpayer's losses described in such 
        subsections for such year.
    ``(c) Special Rules for Pass-Thru Entities.--In the case of any 
qualified timber gain of a pass-thru entity (as defined in section 
1(h)(10)), the election under this section shall be made separately by 
each taxpayer subject to tax on such gain.''.
    (b) Coordination With Maximum Capital Gains Rates.--
            (1) Taxpayers other than corporations.--Paragraph (2) of 
        section 1(h) of the Internal Revenue Code of 1986 is amended to 
        read as follows:
            ``(2) Reduction of net capital gain.--For purposes of this 
        subsection, the net capital gain for any taxable year shall be 
        reduced (but not below zero) by the sum of--
                    ``(A) the amount which the taxpayer takes into 
                account as investment income under section 
                163(d)(4)(B)(iii), and
                    ``(B) the lesser of--
                            ``(i) the amount described in paragraph (1) 
                        of section 1203(a), or
                            ``(ii) the amount described in paragraph 
                        (2) of such section.''.
            (2) Corporations.--Section 1201 of such Code is amended by 
        redesignating subsection (b) as subsection (c) and inserting 
        after subsection (a) the following new subsection:
    ``(b) Qualified Timber Gain Not Taken Into Account.--For purposes 
of this section, in the case of a corporation with respect to which an 
election is in effect under section 1203, the net capital gain for any 
any taxable year shall be reduced (but not below zero) by the 
corporation's qualified timber gain (as defined in section 1203(b)).''.
    (c) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 of the Internal Revenue Code 
of 1986 is amended by inserting before the last sentence the following 
new paragraph:
            ``(21) Qualified timber gains.--The deduction allowed by 
        section 1203.''.
    (d) Deduction Allowed in Computing Adjusted Current Earnings.--
Subparagraph (C) of section 56(g)(4) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new clause:
                            ``(vii) Deduction for qualified timber 
                        gain.--Clause (i) shall not apply to any 
                        deduction allowed under section 1203.''.
    (e) Deduction Allowed in Computing Taxable Income of Electing Small 
Business Trusts.--Subparagraph (C) of section 641(c)(2) of the Internal 
Revenue Code of 1986 is amended by inserting after clause (iii) the 
following new clause:
                            ``(iv) The deduction allowed under section 
                        1203.''.
    (f) Conforming Amendments.--
            (1) Subparagraph (B) of section 172(d)(2) of the Internal 
        Revenue Code of 1986 is amended to read as follows:
                    ``(B) the exclusion under section 1202 and the 
                deduction under section 1203 shall not be allowed.''.
            (2) Paragraph (4) of section 642(c) of such Code is amended 
        by striking the first sentence and inserting the following: 
        ``To the extent that the amount otherwise allowable as a 
        deduction under this subsection consists of gain described in 
        section 1202(a) or qualified timber gain (as defined in section 
        1203(b)), proper adjustment shall be made for any exclusion 
        allowable to the estate or trust under section 1202 and for any 
        deduction allowable to the estate or trust under section 
        1203.''
            (3) Paragraph (3) of section 643(a) of such Code is amended 
        by striking the last sentence and inserting the following: 
        ``The exclusion under section 1202 and the deduction under 
        section 1203 shall not be taken into account.''
            (4) Subparagraph (C) of section 643(a)(6) of such Code is 
        amended to read as follows:
                    ``(C) Paragraph (3) shall not apply to a foreign 
                trust. In the case of such a trust--
                            ``(i) there shall be included gains from 
                        the sale or exchange of capital assets, reduced 
                        by losses from such sales or exchanges to the 
                        extent such losses do not exceed gains from 
                        such sales or exchanges, and
                            ``(ii) the deduction under section 1203 
                        shall not be taken into account.''.
            (5) Paragraph (4) of section 691(c) of such Code is amended 
        by inserting ``1203,'' after ``1202,''.
            (6) Paragraph (2) of section 871(a) of such Code is amended 
        by inserting ``and 1203'' after ``section 1202''.
            (7) 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. 1203. Deduction for qualified timber gain.''.
    (g) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years ending after the date of the enactment 
        of this Act.
            (2) Taxable years which include date of enactment.--In the 
        case of any taxable year which includes the date of the 
        enactment of this Act, for purposes of the Internal Revenue 
        Code of 1986, the taxpayer's qualified timber gain shall not 
        exceed the excess that would be described in section 1203(b) of 
        such Code, as added by this section, if only dispositions of 
        timber after such date were taken into account.