I

104TH CONGRESS

1ST SESSION H. R. 1322

To amend the Internal Revenue Code of 1986 to allow a $100,000 lifetime

deduction for net capital gain.

IN THE HOUSE OF REPRESENTATIVES

MARCH 24, 1995

Mr. SCHUMER (for himself, Mr. MILLER of California, Mr. GEJDENSON, Mr.

FATTAH, Mr. HINCHEY, and Mr. LIPINSKI) introduced the following bill;

which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to allow a

$100,000 lifetime deduction for net capital gain.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Middle Class Savings

5 and Capital Gains Act of 1995’’.

6 SEC. 2. LIFETIME NET CAPITAL GAIN DEDUCTION FOR IN7 DIVIDUALS.

8 (a) IN GENERAL.—Part I of subchapter P of chapter

9 1 of the Internal Revenue Code of 1986 (relating to treat-
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1 ment of capital gains) is amended by adding at the end

2 the following new section:

3 ‘‘SEC. 1203. LIFETIME NET CAPITAL GAIN DEDUCTION FOR

4 INDIVIDUALS.

5 ‘‘(a) IN GENERAL.—In the case of an individual,

6 there shall be allowed as a deduction for the taxable year

7 an amount equal to 100 percent of the net capital gain

8 for the taxable year.

9 ‘‘(b) $100,000 LIFETIME LIMIT.—

10 ‘‘(1) FIRST TAXABLE YEAR.—The amount of

11 the net capital gain taken into account under sub12 section (a) for the first taxable year ending after De13 cember 31, 1994, shall not exceed $100,000.

14 ‘‘(2) SUBSEQUENT TAXABLE YEARS.—

15 ‘‘(A) IN GENERAL.—The amount of the

16 net capital gain taken into account under sub17 section (a) for any subsequent taxable year

18 shall not exceed—

19 ‘‘(i) the excess of the limitation under

20 this subsection for the preceding taxable

21 year reduced by the amount of the net cap22 ital gain taken into account under this

23 subsection by the taxpayer for such preced24 ing year, multiplied by
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1 ‘‘(ii) the inflation adjustment factor

2 for the calendar year in which such subse3 quent taxable year begins.

4 ‘‘(B) INFLATION ADJUSTMENT FACTOR.—

5 The inflation adjustment factor for any cal6 endar year is 100 percent plus the percentage

7 (if any) by which the CPI for the preceding cal8 endar year exceeds the CPI for the second pre9 ceding calendar year. For purposes of the pre10 ceding sentence, the CPI for any calendar year

11 shall be determined under section 1(f)(4).

12 ‘‘(3) SPECIAL RULE FOR JOINT RETURNS.—The

13 amount of the net capital gain taken into account

14 under this section on a joint return for any taxable

15 year shall be allocated equally between the spouses

16 for purposes of determining the limitation under

17 paragraph (2) for any succeeding taxable year.

18 ‘‘(c) EXCLUSION NOT TO APPLY TO GAIN ON SALE

19 OF PRINCIPAL RESIDENCE BY INDIVIDUALS UNDER AGE

20 55.—

21 ‘‘(1) IN GENERAL.—There shall not be taken

22 into account under this section any gain on the sale

23 or exchange of any property if—

24 ‘‘(A) any portion of such property was

25 used at any time as the principal residence
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1 (within the meaning of section 1034) of the tax2 payer, and

3 ‘‘(B) the taxpayer has not attained age 55

4 before the date of such sale or exchange.

5 ‘‘(2) SPECIAL RULES.—

6 ‘‘(A) EXCEPTION FOR RENTAL PROP7 ERTY.—Paragraph (1) shall not apply to a sale

8 or exchange if, during the 3-year period ending

9 on the date of the sale or exchange, such por10 tion is rented, or held for rental, at a fair mar11 ket rental for periods aggregating 2 years or

12 more.

13 ‘‘(B) PROPERTY HELD JOINTLY BY HUS14 BAND AND WIFE.—A rule similar to the rule of

15 section 121(d)(1) shall apply for purposes of

16 this subsection.

17 ‘‘(d) SECTION NOT TO APPLY TO CERTAIN TAX18 PAYERS.—No deduction shall be allowed under this section

19 to—

20 ‘‘(1) any individual who has not attained age 21

21 before the close of the taxable year, or

22 ‘‘(2) an estate or trust.

23 ‘‘(e) COORDINATION WITH TREATMENT OF CAPITAL

24 GAIN UNDER LIMITATION ON INVESTMENT INTEREST.—

25 For purposes of this section, the net capital gain for any
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1 taxable year shall be reduced (but not below zero) by the

2 amount which the taxpayer takes into account as invest3 ment income under section 163(d)(4)(B)(iii).

4 ‘‘(f) TRANSITIONAL RULE.—

5 ‘‘(1) IN GENERAL.—In the case of a taxable

6 year which includes January 1, 1995, the amount

7 taken into account as the net capital gain under

8 subsection (a) shall not exceed the net capital gain

9 determined by only taking into account gains and

10 losses properly taken into account for the portion of

11 the taxable year on or after January 1, 1995.

12 ‘‘(2) SPECIAL RULES FOR PASS-THRU ENTI13 TIES.—

14 ‘‘(A) IN GENERAL.—In applying paragraph

15 (1) with respect to any pass-thru entity, the de16 termination of when gains and losses are prop17 erly taken into account shall be made at the en18 tity level.

19 ‘‘(B) PASS-THRU ENTITY DEFINED.—For

20 purposes of subparagraph (A), the term ‘pass21 thru entity’ means—

22 ‘‘(i) a regulated investment company,

23 ‘‘(ii) a real estate investment trust,

24 ‘‘(iii) an S corporation,

25 ‘‘(iv) a partnership,
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1 ‘‘(v) an estate or trust, and

2 ‘‘(vi) a common trust fund.’’

3 (b) DEDUCTION ALLOWABLE IN COMPUTING AD4 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

5 such Code is amended by inserting after paragraph (15)

6 the following new paragraph:

7 ‘‘(16) CAPITAL GAINS DEDUCTION.—The deduc8 tion allowed by section 1203.’’

9 (c) CONFORMING AMENDMENTS.—

10 (1) Subparagraph (B) of section 172(d)(2) of

11 such Code is amended by inserting before the period

12 ‘‘and the deduction provided by section 1203 shall

13 not be allowed’’.

14 (2) Paragraph (4) of section 691(c) of such

15 Code is amended by inserting ‘‘1203,’’ after

16 ‘‘1202,’’.

17 (3) The second sentence of paragraph (2) of

18 section 871(a) of such Code is amended by inserting

19 ‘‘or 1203’’ after ‘‘1202’’.

20 (4) Paragraph (1) of section 1402(i) of such

21 Code is amended to read as follows:

22 ‘‘(1) IN GENERAL.—In determining the net

23 earnings from self-employment of any options dealer

24 or commodities dealer—
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1 ‘‘(A) notwithstanding subsection (a)(3)(A),

2 there shall not be excluded any gain or loss (in

3 the normal course of the taxpayer’s activity of

4 dealing in or trading section 1256 contracts)

5 from section 1256 contracts or property related

6 to such contracts, and

7 ‘‘(B) the deduction provided by section

8 1203 shall not apply.’’

9 (d) CLERICAL AMENDMENT.—The table of sections

10 for part I of subchapter P of chapter 1 of such Code is

11 amended by adding at the end thereof the following new

12 item:

‘‘Sec. 1203. Capital gains deduction for individuals.’’

13 (e) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years ending on or after

15 December 31, 1994.

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