Reforestation Tax Act of 1998

Summary: Reforestation Tax Act of 1998 - Amends the Internal Revenue Code to allow a deduction to a taxpayer who has a qualified timber gain in an amount equal to the qualified percentage of such gain.  Decreases the amortization period for reforestation expenditures.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Reforestation Tax Act of 1998''.

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. 1203. 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 long-term capital gain from the sale 
or exchange of 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 of (if any) 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 Maximum Rates of Tax on Net Capital Gains.--
            (1) Subsection (h)(4) of section 1 of such Code (relating 
        to maximum capital gains rate) is amended by striking ``and'' 
        at the end of subparagraph (C), by striking the period at the 
        end of subparagraph (D) and inserting ``, and'', and by adding 
        after subparagraph (D) the following new subparagraph:
                    ``(E) qualified timber gain with respect to which 
                an election is in effect under section 1203.''
            (2) Subsection (a) of section 1201 of such Code (relating 
        to the alternative tax for corporations) is amended by 
        inserting at the end thereof the following new sentence:
``For purposes of this section, net capital gain shall be determined 
without regard to qualified timber gain (as defined in section 1203) 
with respect to which an election is in effect under section 1203.''
    (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 inserting after paragraph (17) the 
following new paragraph:
            ``(18) Partial inflation adjustment for timber.--The 
        deduction allowed by section 1203.''
    (d) Technical Amendments.--
            (1) Subparagraph (B) of section 172(d)(2) of such Code is 
        amended to read as follows:
                    ``(B) the exclusion under section 1202 and the 
                deduction under section 1203 shall not be allowed.''
            (2) The last sentence of section 453A(c)(3) of such Code is 
        amended by striking ``(whichever is appropriate)'' and 
        inserting ``or the deduction under section 1203 (whichever is 
        appropriate)''.
            (3) Section 641(d)(2)(C) of such Code is amended by 
        inserting after clause (iii) the following new clause:
                            ``(iv) The deduction under section 1203.''
            (4) The first sentence of section 642(c)(4) of such Code is 
        amended to read as follows: ``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 under section 1202, 
        and any deduction allowable under section 1203, to the estate 
        or trust.''
            (5) The last sentence of section 643(a)(3) of such Code is 
        amended to read as follows: ``The exclusion under section 1202 
        and the deduction under section 1203 shall not be taken into 
        account.''
            (6) Subparagraph (C) of section 643(a)(6) of such Code is 
        amended by inserting ``(i)'' before ``there shall'' and by 
        inserting before the period ``, and (ii) the deduction under 
        section 1203 (relating to partial inflation adjustment for 
        timber) shall not be taken into account''.
            (7) Paragraph (4) of section 691(c) of such Code is amended 
        by inserting ``1203,'' after ``1202,''.
            (8) The second sentence of paragraph (2) of section 871(a) 
        of such Code is amended by striking ``section 1202'' and 
        inserting ``sections 1202 and 1203''.
    (e) 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 
the following new item:

                              ``Sec. 1203. Partial inflation adjustment 
                                        for timber.''
    (f) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges after December 31, 1997.

SEC. 3. AMORTIZATION OF REFORESTATION EXPENDITURES AND REFORESTATION 
              TAX CREDIT.

    (a) Decrease in Amortization Period.--
            (1) In general.--Section 194(a) of the Internal Revenue 
        Code of 1986 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''.
    (b) Remove Cap on Amortizable Basis.--
            (1) Section 194 of such Code is amended by striking 
        subsection (b) and by redesignating subsections (c) and (d) as 
        subsections (b) and (c), respectively.
            (2) Subsection (b) of section 194 of such Code (as 
        redesignated by paragraph (1)) is amended by striking paragraph 
        (4).
            (3) Paragraph (1) of section 48(b) of such Code is amended 
        by striking ``(after the application of section 194(b)(1))''.
    (c) Effective Date.--The amendments made by this section shall 
apply to additions to capital account made after December 31, 1997.