To amend the Internal Revenue Code of 1986 to encourage saving and investment, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investment Incentives Act of 2002''.

SEC. 2. INCREASE IN LIMITATION ON CAPITAL LOSSES OF INDIVIDUALS 
              ALLOWABLE AGAINST ORDINARY INCOME.

    (a) In General.--Paragraph (1) of section 1211(b) of the Internal 
Revenue Code of 1986 (relating to limitation on capital losses of 
taxpayers other than corporations) is amended--
            (1) by striking ``$3,000'' and inserting ``$20,000'', and
            (2) by striking ``$1,500'' and inserting ``$10,000''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

SEC. 3. ACCELERATION OF INCREASE IN CONTRIBUTIONS TO CERTAIN RETIREMENT 
              PLANS.

    (a) IRAs.--
            (1) In general.--Subparagraph (A) of section 219(b)(5) of 
        the Internal Revenue Code of 1986 (defining deductible amount) 
        is amended to read as follows:
                    ``(A) The deductible amount shall be $5,000.''.
            (2) Inflation adjustment.--Section 219(b)(5)(C) of such 
        Code is amended--
                    (A) by striking ``2008'' and inserting ``2002'', 
                and
                    (B) by striking ``2007'' and inserting ``2001''.
    (b) 401(k) Plans.--
            (1) In general.--Paragraph (1) of section 402(g) of such 
        Code is amended--
                    (A) by striking subparagraph (B),
                    (B) by striking ``(A) Limitation.--'' and moving 
                the text 2 ems to the left, and
                    (C) in such text by striking ``the applicable 
                dollar amount'' and inserting ``$15,000''.
            (2) Inflation adjustment.--Section 402(g)(4) of such Code 
        is amended--
                    (A) by striking ``2006'' and inserting ``2002'', 
                and
                    (B) by striking ``2005'' and inserting ``2001''.
            (3) Conforming amendment.--Section 401(a)(30) of such Code 
        is amended by striking ``section 402(g)(1)(A)'' and inserting 
        ``section 402(g)(1)''.
    (c) 457 Plans.--
            (1) In general.--Subparagraph (A) of section 457(b)(2) of 
        such Code is amended by striking ``the applicable dollar 
        amount'' and inserting ``$15,000''.
            (2) Inflation adjustment.--Section 457(e)(15) of such Code 
        is amended to read as follows:
            ``(15) Cost-of-living adjustment.--In the case of taxable 
        years beginning after December 31, 2002, the Secretary shall 
        adjust the $15,000 amount under subsection (b)(2)(A) at the 
        same time and in the same manner as under section 415(d), 
        except that the base period shall be the calendar quarter 
        beginning July 1, 2001, and any increase under this paragraph 
        which is not a multiple of $500 shall be rounded to the next 
        lowest multiple of $500.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2002.

SEC. 4. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME FROM TAX.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to amounts specifically 
excluded from gross income) is amended by inserting after section 115 
the following new section:

``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST RECEIVED BY 
              INDIVIDUALS.

    ``(a) Exclusion From Gross Income.--Gross income does not include 
dividends and interest otherwise includible in gross income which are 
received during the taxable year by an individual.
    ``(b) Limitations.--
            ``(1) Maximum amount.--The aggregate amount excluded under 
        subsection (a) for any taxable year shall not exceed $500 
        ($1,000 in the case of a joint return).
            ``(2) Certain dividends excluded.--Subsection (a) shall not 
        apply to any dividend from a corporation which for the taxable 
        year of the corporation in which the distribution is made is a 
        corporation exempt from tax under section 521 (relating to 
        farmers' cooperative associations).
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Exclusion not to apply to capital gain dividends from 
        regulated investment companies and real estate investment 
        trusts.--

                                ``For treatment of capital gain 
dividends, see sections 854(a) and 857(c).
            ``(2) Certain nonresident aliens ineligible for 
        exclusion.--In the case of a nonresident alien individual, 
        subsection (a) shall apply only in determining the taxes 
        imposed for the taxable year pursuant to sections 871(b)(1) and 
        877(b).
            ``(3) Dividends from employee stock ownership plans.--
        Subsection (a) shall not apply to any dividend described in 
        section 404(k).''.
    (b) Conforming Amendments.--
            (1) Subparagraph (C) of section 32(c)(5) of such Code is 
        amended by striking ``or'' at the end of clause (i), by 
        striking the period at the end of clause (ii) and inserting ``; 
        or'', and by inserting after clause (ii) the following new 
        clause:
                            ``(iii) interest and dividends received 
                        during the taxable year which are excluded from 
                        gross income under section 116.''.
            (2) Subparagraph (A) of section 32(i)(2) of such Code is 
        amended by inserting ``(determined without regard to section 
        116)'' before the comma.
            (3) Subparagraph (B) of section 86(b)(2) of such Code is 
        amended to read as follows:
                    ``(B) increased by the sum of--
                            ``(i) the amount of interest received or 
                        accrued by the taxpayer during the taxable year 
                        which is exempt from tax, and
                            ``(ii) the amount of interest and dividends 
                        received during the taxable year which are 
                        excluded from gross income under section 
                        116.''.
            (4) Subsection (d) of section 135 of such Code is amended 
        by redesignating paragraph (4) as paragraph (5) and by 
        inserting after paragraph (3) the following new paragraph:
            ``(4) Coordination with section 116.--This section shall be 
        applied before section 116.''.
            (5) Paragraph (2) of section 265(a) of such Code is amended 
        by inserting before the period ``, or to purchase or carry 
        obligations or shares, or to make deposits, to the extent the 
        interest thereon is excludable from gross income under section 
        116''.
            (6) Subsection (c) of section 584 of such Code is amended 
        by adding at the end the following new flush sentence:
``The proportionate share of each participant in the amount of 
dividends or interest received by the common trust fund and to which 
section 116 applies shall be considered for purposes of such section as 
having been received by such participant.''.
            (7) Subsection (a) of section 643 of such Code is amended 
        by redesignating paragraph (7) as paragraph (8) and by 
        inserting after paragraph (6) the following new paragraph:
            ``(7) Dividends or interest.--There shall be included the 
        amount of any dividends or interest excluded from gross income 
        pursuant to section 116.''.
            (8) Section 854(a) of such Code is amended by inserting 
        ``section 116 (relating to partial exclusion of dividends and 
        interest received by individuals) and'' after ``For purposes 
        of''.
            (9) Section 857(c) of such Code is amended to read as 
        follows:
    ``(c) Restrictions Applicable to Dividends Received From Real 
Estate Investment Trusts.--
            ``(1) Treatment for section 116.--For purposes of section 
        116 (relating to partial exclusion of dividends and interest 
        received by individuals), a capital gain dividend (as defined 
        in subsection (b)(3)(C)) received from a real estate investment 
        trust which meets the requirements of this part shall not be 
        considered as a dividend.
            ``(2) Treatment for section 243.--For purposes of section 
        243 (relating to deductions for dividends received by 
        corporations), a dividend received from a real estate 
        investment trust which meets the requirements of this part 
        shall not be considered as a dividend.''.
            (10) The table of sections for part III of subchapter B of 
        chapter 1 of such Code is amended by inserting after the item 
        relating to section 115 the following new item:

                              ``Sec. 116. Partial exclusion of 
                                        dividends and interest received 
                                        by individuals.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2001.

Summary: Investment Incentives Act of 2002 - Amends the Internal Revenue Code to: (1) increase from $1,500 to $10,000 the limitation on capital losses allowed against ordinary income. (2) make the increase to the $5,000 amount allowed as an annual retirement contribution deduction effective immediately, instead of starting in 2008, (3) exclude from gross income $500 of dividends and interest.