Middle Class Savings and Capital Gains Act of 1995

Summary: Middle Class Savings and Capital Gains Act of 1995 - Amends the Internal Revenue Code to allow individuals, in computing their adjusted gross income, a deduction of 100 percent of their net capital gain.  Sets a $100,000 lifetime limit on the deduction and adjusts for inflation the balance of this amount remaining after the first year the deduction is taken. 
Excludes from determinations of the deduction the gain on the sale or exchange of a principal residence by a taxpayer under age 55.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Middle Class Savings and Capital 
Gains Act of 1995''.

SEC. 2. LIFETIME NET CAPITAL GAIN DEDUCTION FOR INDIVIDUALS.

    (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. 1203. LIFETIME NET CAPITAL GAIN 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 100 
percent of the net capital gain for the taxable year.
    ``(b) $100,000 Lifetime Limit.--
            ``(1) First taxable year.--The amount of the net capital 
        gain taken into account under subsection (a) for the first 
        taxable year ending after December 31, 1994, shall not exceed 
        $100,000.
            ``(2) Subsequent taxable years.--
                    ``(A) In general.--The amount of the net capital 
                gain taken into account under subsection (a) for any 
                subsequent taxable year shall not exceed--
                            ``(i) the excess of the limitation under 
                        this subsection for the preceding taxable year 
                        reduced by the amount of the net capital gain 
                        taken into account under this subsection by the 
                        taxpayer for such preceding year, multiplied by
                            ``(ii) the inflation adjustment factor for 
                        the calendar year in which such subsequent 
                        taxable year begins.
                    ``(B) Inflation adjustment factor.--The inflation 
                adjustment factor for any calendar year is 100 percent 
                plus the percentage (if any) by which the CPI for the 
                preceding calendar year exceeds the CPI for the second 
                preceding calendar year. For purposes of the preceding 
                sentence, the CPI for any calendar year shall be 
                determined under section 1(f)(4).
            ``(3) Special rule for joint returns.--The amount of the 
        net capital gain taken into account under this section on a 
        joint return for any taxable year shall be allocated equally 
        between the spouses for purposes of determining the limitation 
        under paragraph (2) for any succeeding taxable year.
    ``(c) Exclusion Not To Apply to Gain on Sale of Principal Residence 
by Individuals Under Age 55.--
            ``(1) In general.--There shall not be taken into account 
        under this section any gain on the sale or exchange of any 
        property if--
                    ``(A) any portion of such property was used at any 
                time as the principal residence (within the meaning of 
section 1034) of the taxpayer, and
                    ``(B) the taxpayer has not attained age 55 before 
                the date of such sale or exchange.
            ``(2) Special rules.--
                    ``(A) Exception for rental property.--Paragraph (1) 
                shall not apply to a sale or exchange if, during the 3-
                year period ending on the date of the sale or exchange, 
                such portion is rented, or held for rental, at a fair 
                market rental for periods aggregating 2 years or more.
                    ``(B) Property held jointly by husband and wife.--A 
                rule similar to the rule of section 121(d)(1) shall 
                apply for purposes of this subsection.
    ``(d) Section Not To Apply to Certain Taxpayers.--No deduction 
shall be allowed under this section to--
            ``(1) any individual who has not attained age 21 before the 
        close of the taxable year, or
            ``(2) an estate or trust.
    ``(e) Coordination With Treatment of Capital Gain Under Limitation 
on Investment Interest.--For purposes of this section, the net capital 
gain for any taxable year shall be reduced (but not below zero) by the 
amount which the taxpayer takes into account as investment income under 
section 163(d)(4)(B)(iii).
    ``(f) Transitional Rule.--
            ``(1) In general.--In the case of a taxable year which 
        includes January 1, 1995, the amount taken into account as the 
        net capital gain under subsection (a) shall not exceed the net 
        capital gain determined by only taking into account gains and 
        losses properly taken into account for the portion of the 
        taxable year on or after January 1, 1995.
            ``(2) Special rules for pass-thru entities.--
                    ``(A) In general.--In applying paragraph (1) with 
                respect to any pass-thru entity, the determination of 
                when gains and losses are properly taken into account 
                shall be made at the entity level.
                    ``(B) Pass-thru entity defined.--For purposes of 
                subparagraph (A), the term `pass-thru entity' means--
                            ``(i) a regulated investment company,
                            ``(ii) a real estate investment trust,
                            ``(iii) an S corporation,
                            ``(iv) a partnership,
                            ``(v) an estate or trust, and
                            ``(vi) a common trust fund.''
    (b) Deduction Allowable in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code is amended by inserting after 
paragraph (15) the following new paragraph:
            ``(16) Capital gains deduction.--The deduction allowed by 
        section 1203.''
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 172(d)(2) of such Code is 
        amended by inserting before the period ``and the deduction 
        provided by section 1203 shall not be allowed''.
            (2) Paragraph (4) of section 691(c) of such Code is amended 
        by inserting ``1203,'' after ``1202,''.
            (3) The second sentence of paragraph (2) of section 871(a) 
        of such Code is amended by inserting ``or 1203'' after 
        ``1202''.
            (4) Paragraph (1) of section 1402(i) of such Code is 
        amended to read as follows:
            ``(1) In general.--In determining the net earnings from 
        self-employment of any options dealer or commodities dealer--
                    ``(A) notwithstanding subsection (a)(3)(A), there 
                shall not be excluded any gain or loss (in the normal 
                course of the taxpayer's activity of dealing in or 
                trading section 1256 contracts) from section 1256 
                contracts or property related to such contracts, and
                    ``(B) the deduction provided by section 1203 shall 
                not apply.''
    (d) Clerical Amendment.--The table of sections for part I of 
subchapter P of chapter 1 of such Code is amended by adding at the end 
thereof the following new item:

                              ``Sec. 1203. Capital gains deduction for 
                                        individuals.''
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years ending on or after December 31, 1994.