SEC. 2. LIFETIME NET CAPITAL GAIN DEDUCTION FOR
INDIVIDUALS.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 of the Internal Revenue Code of 1986 (relating to treat-
ment of capital gains) is amended by adding at the end
the following new section:
‘‘SEC. 1203. LIFETIME NET CAPITAL GAIN DEDUCTION FOR
INDIVIDUALS.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a deduction for the taxable year
an amount equal to 100 percent of the net capital gain
for the taxable year.
‘‘(b) $100,000 LIFETIME LIMIT.—
‘‘(1) FIRST TAXABLE YEAR.—The amount of
the net capital gain taken into account under sub-
section (a) for the first taxable year ending after De-
cember 31, 1996, shall not exceed $100,000.
‘‘(2) SUBSEQUENT TAXABLE YEARS.—
‘‘(A) IN
GENERAL.—The amount of the
net capital gain taken into account under sub-
section (a) for any subsequent taxable year
shall not exceed—
‘‘(i) the excess of the limitation under
this subsection for the preceding taxable
year reduced by the amount of the net cap-
ital gain taken into account under this
subsection by the taxpayer for such preced-
ing year, multiplied by
‘‘(ii) the inflation adjustment factor
for the calendar year in which such subse-
quent taxable year begins.
‘‘(B) INFLATION ADJUSTMENT FACTOR.—
The inflation adjustment factor for any cal-
endar year is 100 percent plus the percentage
(if any) by which the CPI for the preceding cal-
endar year exceeds the CPI for the second pre-
ceding calendar year. For purposes of the pre-
ceding sentence, the CPI for any calendar year
shall be determined under section 1(f)(4).
‘‘(3) SPECIAL RULE FOR JOINT RETURNS.—The
amount of the net capital gain taken into account
under this section on a joint return for any taxable
year shall be allocated equally between the spouses
for purposes of determining the limitation under
paragraph (2) for any succeeding taxable year.
‘‘(c) EXCLUSION NOT TO APPLY TO GAIN ON SALE
OF PRINCIPAL RESIDENCE BY INDIVIDUALS UNDER AGE
55.—
‘‘(1) IN GENERAL.—There shall not be taken
into account under this section any gain on the sale
or exchange of any property if—
‘‘(A) any portion of such property was
used at any time as the principal residence
(within the meaning of section 1034) of the tax-
payer, and
‘‘(B) the taxpayer has not attained age 55
before the date of such sale or exchange.
‘‘(2) SPECIAL RULES.—
‘‘(A) EXCEPTION
FOR
RENTAL
PROP-
ERTY.—Paragraph (1) shall not apply to a sale
or exchange if, during the 3-year period ending
on the date of the sale or exchange, such por-
tion is rented, or held for rental, at a fair mar-
ket rental for periods aggregating 2 years or
more.
‘‘(B) PROPERTY HELD JOINTLY BY HUS-
BAND AND WIFE.—A rule similar to the rule of
section 121(d)(1) shall apply for purposes of
this subsection.
‘‘(d) SECTION NOT TO APPLY TO CERTAIN TAX-
PAYERS.—No deduction shall be allowed under this section
to—
‘‘(1) any individual who has not attained age 21
before the close of the taxable year, or
‘‘(2) an estate or trust.
‘‘(e) COORDINATION WITH TREATMENT OF CAPITAL
GAIN UNDER LIMITATION ON INVESTMENT INTEREST.—
For purposes of this section, the net capital gain for any
taxable year shall be reduced (but not below zero) by the
amount which the taxpayer takes into account as invest-
ment income under section 163(d)(4)(B)(iii).
‘‘(f) TRANSITIONAL RULE.—
‘‘(1) IN GENERAL.—In the case of a taxable
year which includes January 1, 1997, the amount
taken into account as the net capital gain under
subsection (a) shall not exceed the net capital gain
determined by only taking into account gains and
losses properly taken into account for the portion of
the taxable year on or after January 1, 1997.
‘‘(2) SPECIAL
RULES
FOR
PASS-THRU
ENTI-
TIES.—
‘‘(A) IN GENERAL.—In applying paragraph
(1) with respect to any pass-thru entity, the de-
termination of when gains and losses are prop-
erly taken into account shall be made at the en-
tity level.
‘‘(B) PASS-THRU ENTITY DEFINED.—For
purposes of subparagraph (A), the term ‘pass-
thru entity’ means—
‘‘(i) a regulated investment company,
‘‘(ii) a real estate investment trust,
‘‘(iii) an S corporation,
‘‘(iv) a partnership,
‘‘(v) an estate or trust, and
‘‘(vi) a common trust fund.’’
(b) DEDUCTION ALLOWABLE
IN COMPUTING AD-
JUSTED GROSS INCOME.—Subsection (a) of section 62 of
such Code is amended by inserting after paragraph (16)
the following new paragraph:
‘‘(17) CAPITAL GAINS DEDUCTION.—The deduc-
tion allowed by section 1203.’’
(c) CONFORMING AMENDMENTS.—
(1) Subparagraph (B) of section 172(d)(2) of
such Code is amended by inserting before the period
‘‘and the deduction provided by section 1203 shall
not be allowed’’.
(2) Paragraph (4) of section 691(c) of such
Code is amended by inserting ‘‘1203,’’ after
‘‘1202,’’.
(3) The second sentence of paragraph (2) of
section 871(a) of such Code is amended by inserting
‘‘or 1203’’ after ‘‘1202’’.
(4) Paragraph (1) of section 1402(i) of such
Code is amended to read as follows: