To make permanent the individual income tax rates for capital gains, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Capital Gains and Estate Tax Relief 
Act of 2007''.

SEC. 2. INDIVIDUAL INCOME TAX RATES FOR CAPITAL GAINS MADE PERMANENT.

    Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 
2003 is amended by striking ``this title'' and inserting ``section 
302''.

SEC. 3. REFORM AND EXTENSION OF ESTATE TAX AFTER 2009.

    (a) Restoration of Unified Credit Against Gift Tax.--Paragraph (1) 
of section 2505(a) of the Internal Revenue Code of 1986 (relating to 
general rule for unified credit against gift tax), after the 
application of subsection (g), is amended by striking ``(determined as 
if the applicable exclusion amount were $1,000,000)''.
    (b) Exclusion Equivalent of Unified Credit Increased to 
$5,000,000.--Subsection (c) of section 2010 of such Code (relating to 
unified credit against estate tax) is amended to read as follows:
    ``(c) Applicable Credit Amount.--
            ``(1) In general.--For purposes of this section, the 
        applicable credit amount is the amount of the tentative tax 
        which would be determined under the rate schedule set forth in 
        section 2001(c) if the amount with respect to which such 
        tentative tax is to be computed were the applicable exclusion 
        amount.
            ``(2) Applicable exclusion amount.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable exclusion amount is as follows:
                            ``(i) For calendar year 2010, $3,750,000.
                            ``(ii) For calendar year 2011, $4,000,000.
                            ``(iii) For calendar year 2012, $4,250,000.
                            ``(iv) For calendar year 2013, $4,500,000.
                            ``(v) For calendar year 2014, $4,750,000.
                            ``(vi) For calendar year 2015 and 
                        thereafter, $5,000,000.
                    ``(B) Inflation adjustment.--In the case of any 
                decedent dying in a calendar year after 2015, the 
                $5,000,000 amount in subparagraph (A)(vi) shall be 
                increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2014' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                        If any amount as adjusted under the preceding 
                        sentence is not a multiple of $50,000, such 
                        amount shall be rounded to the nearest multiple 
                        of $50,000.''.
    (c) Rate Schedule.--
            (1) In general.--Subsection (c) of section 2001 of such 
        Code (relating to rate schedule) is amended to read as follows:
    ``(c) Rate Schedule.--
            ``(1) In general.--The tentative tax is equal to the sum 
        of--
                    ``(A) the product of the rate specified in section 
                1(h)(1)(C) in effect on the date of the decedent's 
                death multiplied by so much of the sum described in 
                subsection (b)(1) as does not exceed $25,000,000, and
                    ``(B) twice the rate specified in section 
                1(h)(1)(C) in effect on the date of the decedent's 
                death of so much of the sum described in subsection 
                (b)(1) as exceeds $25,000,000.
            ``(2) Inflation adjustment.--In the case of any decedent 
        dying in a calendar year after 2015, each $25,000,000 amount in 
        subparagraphs (A) and (B) of paragraph (1) shall be increased 
        by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year by 
                substituting `calendar year 2014' for `calendar year 
                1992' in subparagraph (B) thereof.
                If any amount as adjusted under the preceding sentence 
                is not a multiple of $50,000, such amount shall be 
                rounded to the nearest multiple of $50,000.''.
            (2) Conforming amendment.--Section 2502(a) of such Code 
        (relating to computation of tax), after the application of 
        subsection (g), is amended by adding at the end the following 
        flush sentence:
``In computing the tentative tax under section 2001(c) for purposes of 
this subsection, `the last day of the calendar year in which the gift 
was made' shall be substituted for `the date of the decedent's death' 
each place it appears in such section.''.
    (d) Modifications of Estate and Gift Taxes To Reflect Differences 
in Unified Credit Resulting From Different Tax Rates.--
            (1) Estate tax.--
                    (A) In general.--Section 2001(b)(2) of such Code 
                (relating to computation of tax) is amended by striking 
                ``if the provisions of subsection (c) (as in effect at 
                the decedent's death)'' and inserting ``if the 
                modifications described in subsection (g)''.
                    (B) Modifications.--Section 2001 of such Code is 
                amended by adding at the end the following new 
                subsection:
    ``(g) Modifications to Gift Tax Payable To Reflect Different Tax 
Rates.--For purposes of applying subsection (b)(2) with respect to 1 or 
more gifts, the rates of tax under subsection (c) in effect on the date 
of the decedent's death shall, in lieu of the rates of tax in effect at 
the time of such gifts, be used both to compute--
            ``(1) the tax imposed by chapter 12 with respect to such 
        gifts, and
            ``(2) the credit allowed against such tax under section 
        2505, including in computing--
                    ``(A) the applicable credit amount under section 
                2505(a)(1), and
                    ``(B) the sum of the amounts allowed as a credit 
                for all preceding periods under section 2505(a)(2).
        For purposes of paragraph (2)(A), the applicable credit amount 
        for any calendar year before 1998 is the amount which would be 
        determined under section 2010(c) if the applicable exclusion 
        amount were the dollar amount under section 6018(a)(1) for such 
        year.''.
            (2) Gift tax.--Section 2505(a) of such Code (relating to 
        unified credit against gift tax), after the application of 
        subsection (g), is amended by adding at the end the following 
        new flush sentence:
``For purposes of applying paragraph (2) for any calendar year, the 
rate schedule under section 2001(c) used in computing the applicable 
credit amount under paragraph (1) for such calendar year shall, in lieu 
of the rates of tax in effect for preceding calendar periods, be used 
in determining the amounts allowable as a credit under this section for 
all preceding calendar periods.''.
    (e) Repeal of Deduction for State Death Taxes.--
            (1) In general.--Section 2058 of such Code (relating to 
        State death taxes) is amended by adding at the end the 
        following:
    ``(c) Termination.--This section shall not apply to the estates of 
decedents dying after December 31, 2009.''.
            (2) Conforming amendment.--Section 2106(a)(4) of such Code 
        is amended by adding at the end the following new sentence: 
        ``This paragraph shall not apply to the estates of decedents 
        dying after December 31, 2009.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2009.
    (g) Additional Modifications to Estate Tax.--
            (1) In general.--The following provisions of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001, and the 
        amendments made by such provisions, are hereby repealed:
                    (A) Subtitles A and E of title V.
                    (B) Subsection (d), and so much of subsection 
                (f)(3) as relates to subsection (d), of section 511.
                    (C) Paragraph (2) of subsection (b), and paragraph 
                (2) of subsection (e), of section 521.
        The Internal Revenue Code of 1986 shall be applied as if such 
        provisions and amendments had never been enacted.
            (2) Sunset not to apply.--Section 901 of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001 shall not 
        apply to title V (other than subtitles F, G, and H thereof) of 
        such Act.
            (3) Repeal of deadwood.--
                    (A) Sections 2011, 2057, and 2604 of the Internal 
                Revenue Code of 1986 are hereby repealed.
                    (B) The table of sections for part II of subchapter 
                A of chapter 11 of such Code is amended by striking the 
                item relating to section 2011.
                    (C) The table of sections for part IV of subchapter 
                A of chapter 11 of such Code is amended by striking the 
                item relating to section 2057.
                    (D) The table of sections for subchapter A of 
                chapter 13 of such Code is amended by striking the item 
                relating to section 2604.

SEC. 4. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED CREDIT OF DECEASED 
              SPOUSE.

    (a) In General.--Subsection (c) of section 2010 of the Internal 
Revenue Code of 1986 (defining applicable credit amount), as amended by 
section 3(b), is amended by striking paragraph (2) and inserting the 
following new paragraphs:
            ``(2) Applicable exclusion amount.--For purposes of this 
        subsection, the applicable exclusion amount is the sum of--
                    ``(A) the basic exclusion amount, and
                    ``(B) in the case of a surviving spouse, the 
                aggregate deceased spousal unused exclusion amount.
            ``(3) Basic exclusion amount.--
                    ``(A) In general.--For purposes of this subsection, 
                the basic exclusion amount is as follows:
                            ``(i) For calendar year 2010, $3,750,000.
                            ``(ii) For calendar year 2011, $4,000,000.
                            ``(iii) For calendar year 2012, $4,250,000.
                            ``(iv) For calendar year 2013, $4,500,000.
                            ``(v) For calendar year 2014, $4,750,000.
                            ``(vi) For calendar year 2015 and 
                        thereafter, $5,000,000.
                    ``(B) Inflation adjustment.--In the case of any 
                decedent dying in a calendar year after 2015, the 
                $5,000,000 amount in subparagraph (A)(vi) shall be 
                increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2014' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                        If any amount as adjusted under the preceding 
                        sentence is not a multiple of $50,000, such 
                        amount shall be rounded to the nearest multiple 
                        of $50,000.
            ``(4) Aggregate deceased spousal unused exclusion amount.--
        For purposes of this subsection, the term `aggregate deceased 
        spousal unused exclusion amount' means the lesser of--
                    ``(A) the basic exclusion amount, or
                    ``(B) the sum of the deceased spousal unused 
                exclusion amounts of the surviving spouse.
            ``(5) Deceased spousal unused exclusion amount.--For 
        purposes of this subsection, the term `deceased spousal unused 
        exclusion amount' means, with respect to the surviving spouse 
        of any deceased spouse dying after December 31, 2009, the 
        excess (if any) of--
                    ``(A) the applicable exclusion amount of the 
                deceased spouse, over
                    ``(B) the amount with respect to which the 
                tentative tax is determined under section 2001(b)(1) on 
                the estate of such deceased spouse.
            ``(6) Special rules.--
                    ``(A) Election required.--A deceased spousal unused 
                exclusion amount may not be taken into account by a 
                surviving spouse under paragraph (5) unless the 
                executor of the estate of the deceased spouse files an 
                estate tax return on which such amount is computed and 
                makes an election on such return that such amount may 
                be so taken into account. Such election, once made, 
                shall be irrevocable. No election may be made under 
                this subparagraph if such return is filed after the 
                time prescribed by law (including extensions) for 
                filing such return.
                    ``(B) Examination of prior returns after expiration 
                of period of limitations with respect to deceased 
                spousal unused exclusion amount.--Notwithstanding any 
                period of limitation in section 6501, after the time 
                has expired under section 6501 within which a tax may 
                be assessed under chapter 11 or 12 with respect to a 
                deceased spousal unused exclusion amount, the Secretary 
                may examine a return of the deceased spouse to make 
                determinations with respect to such amount for purposes 
                of carrying out this subsection.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this subsection.''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 2505(a), as amended by section 
        3, is amended to read as follows:
            ``(1) the applicable credit amount under section 2010(c) 
        which would apply if the donor died as of the end of the 
        calendar year, reduced by''.
            (2) Section 2631(c) is amended by striking ``the applicable 
        exclusion amount'' and inserting ``the basic exclusion 
        amount''.
            (3) Section 6018(a)(1), after the application of section 
        101(g), is amended by striking ``applicable exclusion amount'' 
        and inserting ``basic exclusion amount''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2009.

Summary: Capital Gains and Estate Tax Relief Act of 2007 - Makes permanent the reduction in capital gains tax rates enacted by the Jobs and Growth Tax Relief and Reconciliation Act of 2003. Amends the Internal Revenue Code to: (1) restore the unified credit against gift tax liability. (2) provide for annual increases in the estate tax exclusion amount between 2010 and 2015 and establish a permanent exclusion amount of $5 million for 2015 and thereafter. (3) provide for an inflation adjustment to the estate tax exclusion amount after 2015, (4) reduce estate tax rate brackets. And (5) allow a surviving spouse to use the unused unified estate tax credit of a deceased spouse.