I

104TH CONGRESS

2D SESSION H. R. 3984

To amend the Internal Revenue Code of 1986 to provide for a child tax

credit and a deduction for taxpayers with whom a parent or grandparent

resides, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

AUGUST 2, 1996

Mr. HUNTER 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 provide

for a child tax credit and a deduction for taxpayers

with whom a parent or grandparent resides, and for

other purposes.

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 ‘‘Kids, Homes, and

5 Grandparents Act of 1996’’.

6 SEC. 2. CHILD TAX CREDIT.

7 (a) IN GENERAL.—Subpart A of part IV of sub8 chapter A of chapter 1 of the Internal Revenue Code of
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1 1986 (relating to nonrefundable personal credits) is

2 amended by inserting after section 22 the following new

3 section:

4 ‘‘SEC. 23. CHILD TAX CREDIT.

5 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be al6 lowed as a credit against the tax imposed by this chapter

7 for the taxable year an amount equal to $500 multiplied

8 by the number of qualifying children of the taxpayer.

9 ‘‘(b) QUALIFYING CHILD.—For purposes of this sec10 tion, the term ‘qualifying child’ means any individual if—

11 ‘‘(1) the taxpayer is allowed a deduction under

12 section 151 with respect to such individual for the

13 taxable year,

14 ‘‘(2) such individual has not attained the age of

15 18 as of the close of the calendar year in which the

16 taxable year of the taxpayer begins, and

17 ‘‘(3) such individual bears a relationship to the

18 taxpayer described in section 32(c)(3)(B).’’

19 (b) CLERICAL AMENDMENT.—The table of sections

20 for subpart A of part IV of subchapter A of chapter 1

21 of such Code is amended by inserting after the item relat22 ing to section 22 the following new item:

‘‘Sec. 23. Child tax credit.’’

23 (c) EFFECTIVE DATE.—The amendments made by

24 this section shall apply to taxable years beginning after

25 December 31, 1996.
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1 SEC. 3. DEDUCTION IF PARENT OR GRANDPARENT RE2 SIDES WITH TAXPAYER.

3 (a) IN GENERAL.—Part VII of subchapter B of chap4 ter 1 of the Internal Revenue Code of 1986 is amended

5 by redesignating section 220 as section 221 and by insert6 ing after section 219 the following new section:

7 ‘‘SEC. 220. TAXPAYERS WITH WHOM PARENT OR GRAND8 PARENT RESIDES.

9 ‘‘(a) IN GENERAL.—In the case of an individual who

10 maintains a household which includes as a member one

11 or more parents or grandparents of such individual who

12 have as the principal place of their abode the home of such

13 individual, there shall be allowed as a deduction the prod14 uct of—

15 (1) $1000, and

16 (2) the number of such parents and grand17 parents.

18 ‘‘(b) PARENT OR GRANDPARENT.—For purposes of

19 subsection (a), the term ‘parent or grandparent’ means,

20 with respect to any individual, any ancestor of the individ21 ual or of the individual’s spouse or former spouse. For

22 purposes of the preceding sentence, the term ‘ancestor’ in23 cludes a stepmother or stepfather.’’

24 (b) DEDUCTION ALLOWABLE WHETHER OR NOT

25 TAXPAYER ITEMIZES.—Subsection (a) of section 62 of
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1 such Code is amended by inserting after paragraph (15)

2 the following new paragraph:

3 ‘‘(16) TAXPAYERS WITH WHOM PARENT OR

4 GRANDPARENT RESIDES.—The deduction allowed by

5 section 220.’’

6 (c) CLERICAL AMENDMENT.—The table of sections

7 for part VII of subchapter B of chapter 1 of such Code

8 is amended by striking the item relating to section 220

9 and inserting the following new items:

‘‘Sec. 220. Taxpayers with whom parent or grandparent resides.

‘‘Sec. 221. Cross reference.’’

10 (d) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to taxable years beginning after

12 December 31, 1996.

13 SEC. 4. REDUCTION OF TAX ON QUALIFIED PRINCIPAL RES14 IDENCE GAIN.

15 (a) IN GENERAL.—Section 1 of the Internal Revenue

16 Code of 1986 (relating to tax imposed on individuals) is

17 amended by adding at the end the following new sub18 section:

19 ‘‘(i) REDUCTION IN CAPITAL GAINS RATE APPLIED

20 TO QUALIFIED PRINCIPAL RESIDENCE GAIN.—

21 ‘‘(1) IN GENERAL.—In the case of an individ22 ual, if any taxable income of the taxpayer would be

23 taxed at a rate in excess of 15 percent (determined

24 without regard to this subsection) for any taxable
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1 year and such taxpayer has qualified principal resi2 dence gain for such taxable year—

3 ‘‘(A) subsection (h) shall not apply to such

4 taxable year, and

5 ‘‘(B) the tax imposed by this section for

6 such taxable year shall not exceed the sum of—

7 ‘‘(i) a tax computed at the rates and

8 in the same manner as if this subsection

9 had not been enacted on taxable income re10 duced by the amount of the net capital

11 gain,

12 ‘‘(ii) 15 percent of qualified principal

13 residence gain, and

14 ‘‘(iii) the sum of—

15 ‘‘(I) 15 percent of the excess (if

16 any) of the maximum amount of in17 come subject to the 15 percent rate

18 bracket applicable to the taxpayer

19 over the amounts taken into account

20 under clauses (i) and (ii), and

21 ‘‘(II) 28 percent of the excess (if

22 any) of taxable income over the

23 amounts taken into account under

24 subclause (I) and clauses (i) and (ii).
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1 ‘‘(2) QUALIFIED PRINCIPAL RESIDENCE

2 GAIN.—For purposes of this subsection—

3 ‘‘(A) IN GENERAL.—The term ‘qualified

4 principal residence gain’ means the amount of

5 gain from the sale or exchange of a qualified

6 principal residence during the taxable year, re7 duced by—

8 ‘‘(i) the amount of gain not included

9 in gross income pursuant to an election

10 under section 121 (relating to one-time ex11 clusion of gain from sale of principal resi12 dence by individual who has attained age

13 55) with respect to such sale or exchange,

14 and

15 ‘‘(ii) the amount of gain not recog16 nized with respect to such sale or exchange

17 under section 1034 (relating to rollover of

18 gain on sale of principal residence).

19 ‘‘(B) LIMITATION.—In no event may the

20 qualified principal residence gain exceed the

21 lesser of—

22 ‘‘(i) $90,000, or

23 ‘‘(ii) the net capital gain for the tax24 able year.
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1 ‘‘(C) QUALIFIED PRINCIPAL RESIDENCE.—

2 The term ‘qualified principal residence’ means a

3 principal residence (within the meaning of sec4 tion 1034) with respect to which the taxpayer

5 meets the requirements of 121(a)(2) (deter6 mined after the application of section 121(d)).

7 ‘‘(D) PROPERTY USED IN PART AS PRIN8 CIPAL RESIDENCE.—Rules similar to the rules

9 of section 121(d)(5) shall apply.

10 ‘‘(3) COORDINATION WITH INVESTMENT IN11 COME ELECTION.—For purposes of this subsection,

12 the net capital gain for any taxable year shall be re13 duced (but not below zero) by the amount which the

14 taxpayer elects to take into account as investment

15 income for the taxable year under section

16 163(d)(4)(B)(iii).’’

17 (b) EFFECTIVE DATE.—The amendment made by

18 this section shall apply to gain from sales or exchanges

19 of principal residences after December 31, 1996, for tax20 able years beginning after such date.

21 SEC. 5. INDEXED BASIS OF PRIMARY RESIDENCE.

22 (a) IN GENERAL.—Part II of subchapter O of chap23 ter 1 of the Internal Revenue Code of 1986 (relating to

24 basis rules of general application) is amended by inserting

25 after section 1021 the following new section:
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1 ‘‘SEC. 1022. ADJUSTED BASIS OF PRINCIPAL RESIDENCE.

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

3 adjusted basis for determining the gain from the sale or

4 exchange of the principal residence (within the meaning

5 of section 1034) of such individual shall be the indexed

6 basis of such principal residence.

7 ‘‘(b) INDEXED BASIS.—For purposes of this section,

8 the indexed basis of any principal residence is the sum

9 of—

10 ‘‘(1) the adjusted basis (determined without re11 gard to this section) of such residence, and

12 ‘‘(2) the applicable inflation adjustment.

13 ‘‘(c) APPLICABLE INFLATION ADJUSTMENT.—For

14 purposes of this section, the term ‘applicable inflation ad15 justment’ means, for any principal residence, an amount

16 equal to the product of—

17 ‘‘(1) the adjusted basis (determined without re18 gard to this section) of such residence, and

19 ‘‘(2) the percentage (if any) by which—

20 ‘‘(A) the gross domestic product deflator

21 for the last calendar quarter ending before such

22 residence is sold or exchanged, exceeds

23 ‘‘(B) the gross domestic product deflator

24 for the last calendar quarter ending before such

25 residence was acquired by the taxpayer.
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1 The percentage under paragraph (2) shall be rounded to

the nearest 1 2 ⁄10 of 1 percentage point.

3 ‘‘(d) GROSS DOMESTIC PRODUCT DEFLATOR.—For

4 purposes of this section, the gross domestic product

5 deflator for any calendar quarter is the implicit price

6 deflator for the gross domestic product for such quarter

7 (as shown in the last revision thereof released by the Sec8 retary of Commerce before the close of the following cal9 endar quarter).

10 ‘‘(e) TREATMENT OF IMPROVEMENTS TO PROP11 ERTY.—If there is an addition to the adjusted basis of

12 a principal residence during a taxable year by reason of

13 an improvement to such residence, and the aggregate

14 amount thereof during the taxable year with respect to

15 such residence is $1,000 or more, such improvement shall

16 be separately indexed under subsections (b) and (c) as if

17 the improvement were a separate residence acquired at the

18 close of such taxable year, in accordance with regulations

19 prescribed by the Secretary.’’

20 (b) CLERICAL AMENDMENT.—The table of sections

21 for part II of subchapter O of chapter 1 of such Code

22 is amended by inserting after the item relating to section

23 1021 the following new item:

‘‘Sec. 1022. Adjusted basis of principal residence.’’

24 (c) EFFECTIVE DATE.—The amendments made by

25 this section shall apply to residences sold or exchanged
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1 after December 31, 1996, for taxable years beginning

2 after such date.

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