‘‘(A) the adjusted basis of the decedent, or 
‘‘(B) the fair market value of the property 
at the date of the decedent’s death. 
‘‘(b) QUALIFIED PROPERTY.—For purposes of this 
section, the term ‘qualified property’ means— 
‘‘(1) the qualified family-owned business inter-
ests of the decedent with respect to which an elec-
tion is made under section 2059(b)(1)(B), and 
‘‘(2) the qualified spousal property. 
‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY 
ACQUIRED BY SURVIVING SPOUSE.— 
‘‘(1) IN GENERAL.—In the case of property to 
which this subsection applies and which is qualified 
spousal property, the basis of such property under 
subsection (a) shall be increased by its spousal prop-
erty basis increase. 
‘‘(2) SPOUSAL
PROPERTY
BASIS
INCREASE.— 
For purposes of this subsection— 
‘‘(A) IN GENERAL.—The spousal property 
basis increase for property referred to in para-
graph (1) is the portion of the aggregate spous-
al property basis increase which is allocated to 
the property pursuant to this section. 
‘‘(B) AGGREGATE
SPOUSAL
PROPERTY 
BASIS INCREASE.—In the case of any estate,
the aggregate spousal property basis increase is 
$3,000,000. 
‘‘(3) QUALIFIED
SPOUSAL
PROPERTY.—For 
purposes of this section, the term ‘qualified spousal 
property’ means any interest in property which 
passes or has passed from the decedent to the dece-
dent’s surviving spouse with respect to which a de-
duction is allowed under section 2056. 
‘‘(4) DEFINITIONS AND SPECIAL RULES.— 
‘‘(A) PROPERTY
TO
WHICH
SUBSECTION 
APPLIES.—The basis of property acquired from 
a decedent may be increased under this sub-
section only if the property was owned by the 
decedent at the time of death. 
‘‘(B) RULES RELATING TO OWNERSHIP.— 
‘‘(i) JOINTLY
HELD
PROPERTY.—In 
the case of property which was owned by 
the decedent and another person as joint 
tenants with right of survivorship or ten-
ants by the entirety— 
‘‘(I) if the only such other person 
is the surviving spouse, the decedent 
shall be treated as the owner of only 
50 percent of the property,
‘‘(II) in any case (to which sub-
clause (I) does not apply) in which the 
decedent furnished consideration for 
the acquisition of the property, the de-
cedent shall be treated as the owner 
to the extent of the portion of the 
property which is proportionate to 
such consideration, and 
‘‘(III) in any case (to which sub-
clause (I) does not apply) in which the 
property has been acquired by gift, 
bequest, devise, or inheritance by the 
decedent and any other person as 
joint tenants with right of survivor-
ship and their interests are not other-
wise specified or fixed by law, the de-
cedent shall be treated as the owner 
to the extent of the value of a frac-
tional part to be determined by divid-
ing the value of the property by the 
number of joint tenants with right of 
survivorship. 
‘‘(ii) REVOCABLE TRUSTS.—The dece-
dent shall be treated as owning property 
transferred by the decedent during life to
a qualified revocable trust (as defined in 
section 645(b)(1)). 
‘‘(iii) POWERS
OF
APPOINTMENT.— 
The decedent shall not be treated as own-
ing any property by reason of holding a 
power of appointment with respect to such 
property. 
‘‘(iv) COMMUNITY PROPERTY.—Prop-
erty 
which 
represents 
the 
surviving 
spouse’s one-half share of community prop-
erty held by the decedent and the surviving 
spouse under the community property laws 
of any State or possession of the United 
States or any foreign country shall be 
treated for purposes of this section as 
owned by, and acquired from, the decedent 
if at least one-half of the whole of the com-
munity interest in such property is treated 
as owned by, and acquired from, the dece-
dent without regard to this clause. 
‘‘(C) PROPERTY ACQUIRED BY DECEDENT 
BY GIFT WITHIN 3 YEARS OF DEATH.— 
‘‘(i) IN
GENERAL.—This subsection 
shall not apply to property acquired by the 
decedent by gift or by inter vivos transfer
for less than adequate and full consider-
ation in money or money’s worth during 
the 3-year period ending on the date of the 
decedent’s death. 
‘‘(ii) EXCEPTION FOR CERTAIN GIFTS 
FROM SPOUSE.—Clause (i) shall not apply 
to property acquired by the decedent from 
the decedent’s spouse unless, during such 
3-year period, such spouse acquired the 
property in whole or in part by gift or by 
inter vivos transfer for less than adequate 
and full consideration in money or money’s 
worth. 
‘‘(D) STOCK OF CERTAIN ENTITIES.—This 
subsection shall not apply to— 
‘‘(i) stock or securities of a foreign 
personal holding company, 
‘‘(ii) stock of a DISC or former 
DISC, 
‘‘(iii) stock of a foreign investment 
company, or 
‘‘(iv) stock of a passive foreign invest-
ment company unless such company is a 
qualified electing fund (as defined in sec-
tion 1295) with respect to the decedent.
‘‘(E) FAIR MARKET VALUE LIMITATION.— 
The adjustments under this subsection shall not 
increase the basis of any interest in property 
acquired from the decedent above its fair mar-
ket value in the hands of the decedent as of the 
date of the decedent’s death. 
‘‘(d) PROPERTY ACQUIRED FROM THE DECEDENT.— 
For purposes of this section, the following property shall 
be considered to have been acquired from the decedent: 
‘‘(1) Property acquired by bequest, devise, or 
inheritance, or by the decedent’s estate from the de-
cedent. 
‘‘(2) Property transferred by the decedent dur-
ing his lifetime— 
‘‘(A) to a qualified revocable trust (as de-
fined in section 645(b)(1)), or 
‘‘(B) to any other trust with respect to 
which the decedent reserved the right to make 
any change in the enjoyment thereof through 
the exercise of a power to alter, amend, or ter-
minate the trust. 
‘‘(3) Any other property passing from the dece-
dent by reason of death to the extent that such 
property passed without consideration.
‘‘(e) COORDINATION WITH SECTION 691.—This sec-
tion shall not apply to property which constitutes a right 
to receive an item of income in respect of a decedent under 
section 691. 
‘‘(f) CERTAIN LIABILITIES DISREGARDED.— 
‘‘(1) IN
GENERAL.—In determining whether 
gain is recognized on the acquisition of property— 
‘‘(A) from a decedent by a decedent’s es-
tate or any beneficiary other than a tax-exempt 
beneficiary, and 
‘‘(B) from the decedent’s estate by any 
beneficiary other than a tax-exempt beneficiary, 
and in determining the adjusted basis of such prop-
erty, liabilities in excess of basis shall be dis-
regarded. 
‘‘(2) TAX-EXEMPT
BENEFICIARY.—For pur-
poses of paragraph (1), the term ‘tax-exempt bene-
ficiary’ means— 
‘‘(A) the United States, any State or polit-
ical subdivision thereof, any possession of the 
United States, any Indian tribal government 
(within the meaning of section 7871), or any 
agency or instrumentality of any of the fore-
going,
‘‘(B) an organization (other than a cooper-
ative described in section 521) which is exempt 
from tax imposed by chapter 1, 
‘‘(C) any foreign person or entity (within 
the meaning of section 168(h)(2)), and 
‘‘(D) to the extent provided in regulations, 
any person to whom property is transferred for 
the principal purpose of tax avoidance. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary to carry out the pur-
poses of this section.’’. 
(e) CLERICAL AMENDMENTS.— 
(1) The table of sections for part IV of sub-
chapter A of chapter 11 of the Internal Revenue 
Code of 1986 is amended by striking the item relat-
ing to section 2057 and by inserting after the item 
relating to section 2058 the following new item: 
‘‘Sec. 2059. Exclusion for qualified family-owned business interests.’’. 
(2) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by 
striking the item relating to section 1023 and insert-
ing the following new items: 
‘‘Sec. 1023. Treatment of qualified family-owned business interests and spousal 
property. 
‘‘Sec. 1024. Cross references.’’.
(f) EFFECTIVE DATES.—The amendments made by 
this section shall apply to estates of decedents dying, and 
gifts made— 
(1) after December 31, 2005, and before Janu-
ary 1, 2010, and 
(2) after December 31, 2011. 
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