Kids, Homes, and Grandparents Act of 1996

Summary: Kids, Homes, and Grandparents Act of 1996 - Amends the Internal Revenue Code to provide for:  (1) a tax credit for each qualifying child; (2) a tax deduction for taxpayers with whom a parent or grandparent resides; (3) a reduction in the capital gains rate applied to qualified principal residence gain; and (4) an indexed basis for primary residences.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Kids, Homes, and Grandparents Act of 
1996''.

SEC. 2. CHILD TAX CREDIT.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 (relating to nonrefundable 
personal credits) is amended by inserting after section 22 the 
following new section:

``SEC. 23. CHILD TAX CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to $500 multiplied by the number of qualifying children of the 
taxpayer.
    ``(b) Qualifying Child.--For purposes of this section, the term 
`qualifying child' means any individual if--
            ``(1) the taxpayer is allowed a deduction under section 151 
        with respect to such individual for the taxable year,
            ``(2) such individual has not attained the age of 18 as of 
        the close of the calendar year in which the taxable year of the 
        taxpayer begins, and
            ``(3) such individual bears a relationship to the taxpayer 
        described in section 32(c)(3)(B).''
    (b) Clerical Amendment.--The table of sections for subpart A of 
part IV of subchapter A of chapter 1 of such Code is amended by 
inserting after the item relating to section 22 the following new item:

                              ``Sec. 23. Child tax credit.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 3. DEDUCTION IF PARENT OR GRANDPARENT RESIDES WITH TAXPAYER.

    (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by redesignating section 220 
as section 221 and by inserting after section 219 the following new 
section:

``SEC. 220. TAXPAYERS WITH WHOM PARENT OR GRANDPARENT RESIDES.

    ``(a) In General.--In the case of an individual who maintains a 
household which includes as a member one or more parents or 
grandparents of such individual who have as the principal place of 
their abode the home of such individual, there shall be allowed as a 
deduction the product of--
            (1) $1000, and
            (2) the number of such parents and grandparents.
    ``(b) Parent or Grandparent.--For purposes of subsection (a), the 
term `parent or grandparent' means, with respect to any individual, any 
ancestor of the individual or of the individual's spouse or former 
spouse. For purposes of the preceding sentence, the term `ancestor' 
includes a stepmother or stepfather.''
    (b) Deduction Allowable Whether or Not Taxpayer Itemizes.--
Subsection (a) of section 62 of such Code is amended by inserting after 
paragraph (15) the following new paragraph:
            ``(16) Taxpayers with whom parent or grandparent resides.--
        The deduction allowed by section 220.''
    (c) Clerical Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by striking the item 
relating to section 220 and inserting the following new items:

                              ``Sec. 220. Taxpayers with whom parent or 
                                        grandparent resides.
                              ``Sec. 221.  Cross reference.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.

SEC. 4. REDUCTION OF TAX ON QUALIFIED PRINCIPAL RESIDENCE GAIN.

    (a) In General.--Section 1 of the Internal Revenue Code of 1986 
(relating to tax imposed on individuals) is amended by adding at the 
end the following new subsection:
    ``(i) Reduction in Capital Gains Rate Applied to Qualified 
Principal Residence Gain.--
            ``(1) In general.--In the case of an individual, if any 
        taxable income of the taxpayer would be taxed at a rate in 
        excess of 15 percent (determined without regard to this 
        subsection) for any taxable year and such taxpayer has 
        qualified principal residence gain for such taxable year--
                    ``(A) subsection (h) shall not apply to such 
                taxable year, and
                    ``(B) the tax imposed by this section for such 
                taxable year shall not exceed the sum of--
                            ``(i) a tax computed at the rates and in 
                        the same manner as if this subsection had not 
                        been enacted on taxable income reduced by the 
                        amount of the net capital gain,
                            ``(ii) 15 percent of qualified principal 
                        residence gain, and
                            ``(iii) the sum of--
                                    ``(I) 15 percent of the excess (if 
                                any) of the maximum amount of income 
                                subject to the 15 percent rate bracket 
                                applicable to the taxpayer over the 
                                amounts taken into account under 
                                clauses (i) and (ii), and
                                    ``(II) 28 percent of the excess (if 
                                any) of taxable income over the amounts 
                                taken into account under subclause (I) 
                                and clauses (i) and (ii).
            ``(2) Qualified principal residence gain.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `qualified principal 
                residence gain' means the amount of gain from the sale 
                or exchange of a qualified principal residence during 
                the taxable year, reduced by--
                            ``(i) the amount of gain not included in 
                        gross income pursuant to an election under 
                        section 121 (relating to one-time exclusion of 
                        gain from sale of principal residence by 
                        individual who has attained age 55) with 
                        respect to such sale or exchange, and
                            ``(ii) the amount of gain not recognized 
                        with respect to such sale or exchange under 
                        section 1034 (relating to rollover of gain on 
                        sale of principal residence).
                    ``(B) Limitation.--In no event may the qualified 
                principal residence gain exceed the lesser of--
                            ``(i) $90,000, or
                            ``(ii) the net capital gain for the taxable 
                        year.
                    ``(C) Qualified principal residence.--The term 
                `qualified principal residence' means a principal 
                residence (within the meaning of section 1034) with 
                respect to which the taxpayer meets the requirements of 
                121(a)(2) (determined after the application of section 
                121(d)).
                    ``(D) Property used in part as principal 
                residence.--Rules similar to the rules of section 
                121(d)(5) shall apply.
            ``(3) Coordination with investment income election.--For 
        purposes of this subsection, the net capital gain for any 
        taxable year shall be reduced (but not below zero) by the 
        amount which the taxpayer elects to take into account as 
        investment income for the taxable year under section 
        163(d)(4)(B)(iii).''
    (b) Effective Date.--The amendment made by this section shall apply 
to gain from sales or exchanges of principal residences after December 
31, 1996, for taxable years beginning after such date.

SEC. 5. INDEXED BASIS OF PRIMARY RESIDENCE.

    (a) In General.--Part II of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to basis rules of general 
application) is amended by inserting after section 1021 the following 
new section:

``SEC. 1022. ADJUSTED BASIS OF PRINCIPAL RESIDENCE.

    ``(a) In General.--In the case of an individual, the adjusted basis 
for determining the gain from the sale or exchange of the principal 
residence (within the meaning of section 1034) of such individual shall 
be the indexed basis of such principal residence.
    ``(b) Indexed Basis.--For purposes of this section, the indexed 
basis of any principal residence is the sum of--
            ``(1) the adjusted basis (determined without regard to this 
        section) of such residence, and
            ``(2) the applicable inflation adjustment.
    ``(c) Applicable Inflation Adjustment.--For purposes of this 
section, the term `applicable inflation adjustment' means, for any 
principal residence, an amount equal to the product of--
            ``(1) the adjusted basis (determined without regard to this 
        section) of such residence, and
            ``(2) the percentage (if any) by which--
                    ``(A) the gross domestic product deflator for the 
                last calendar quarter ending before such residence is 
                sold or exchanged, exceeds
                    ``(B) the gross domestic product deflator for the 
                last calendar quarter ending before such residence was 
                acquired by the taxpayer.
The percentage under paragraph (2) shall be rounded to the nearest \1/
10\ of 1 percentage point.
    ``(d) Gross Domestic Product Deflator.--For purposes of this 
section, the gross domestic product deflator for any calendar quarter 
is the implicit price deflator for the gross domestic product for such 
quarter (as shown in the last revision thereof released by the 
Secretary of Commerce before the close of the following calendar 
quarter).
    ``(e) Treatment of Improvements to Property.--If there is an 
addition to the adjusted basis of a principal residence during a 
taxable year by reason of an improvement to such residence, and the 
aggregate amount thereof during the taxable year with respect to such 
residence is $1,000 or more, such improvement shall be separately 
indexed under subsections (b) and (c) as if the improvement were a 
separate residence acquired at the close of such taxable year, in 
accordance with regulations prescribed by the Secretary.''
    (b) Clerical Amendment.--The table of sections for part II of 
subchapter O of chapter 1 of such Code is amended by inserting after 
the item relating to section 1021 the following new item:

                              ``Sec. 1022. Adjusted basis of principal 
                                        residence.''
    (c) Effective Date.--The amendments made by this section shall 
apply to residences sold or exchanged after December 31, 1996, for 
taxable years beginning after such date.