SEC. 202. DEDUCTION FOR QUALIFIED HIGHER EDUCATION
EXPENSES.
(a) DEDUCTION ALLOWED.— Part VII of subchapter
B of chapter 1 (relating to additional itemized deductions
for individuals) is amended by redesignating section 221
as section 222 and by inserting after section 220 the fol-
lowing new section:
‘‘SEC. 221. QUALIFIED HIGHER EDUCATION EXPENSES.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an
individual, there shall be allowed as a deduction the
amount of qualified higher education expenses paid by the
taxpayer during the taxable year for education furnished
during any academic period (within the meaning of section
25A) beginning in such year.
‘‘(b) LIMITATIONS.—
‘‘(1) ANNUAL LIMIT.—The amount allowed as a
deduction under subsection (a) for any taxable year
with respect to expenses paid for education fur-
nished to any 1 individual shall not exceed the lesser
of—
‘‘(A) $10,000, or
‘‘(B) the amount includible in the tax-
payer’s gross income for such taxable year by
reason of a distribution from a qualified tuition
program (as defined in section 529), or an edu-
cation investment account (as defined in section
530), the beneficiary of which is such individ-
ual.
‘‘(2) AGGREGATE LIMIT.—The amount allowed
as a deduction under subsection (a) to the taxpayer
or any other individual with respect to expenses paid
for education furnished to any 1 individual shall not
exceed $40,000 for all taxable years.
‘‘(3) DEDUCTION ALLOWED FOR YEAR ONLY IF
INDIVIDUAL IS AT LEAST
1⁄2 TIME STUDENT FOR
PORTION OF YEAR.—No deduction shall be allowed
under subsection (a) for a taxable year with respect
to the qualified higher education expenses of an indi-
vidual unless such individual is an eligible student
(as defined in section 25A(d)(3)) for at least one
academic period which begins during such year.
‘‘(4) DEDUCTION ALLOWED ONLY FOR FIRST 4
YEARS OF POSTSECONDARY EDUCATION.—No deduc-
tion shall be allowed under subsection (a) for a tax-
able year with respect to the qualified higher edu-
cation expenses of an individual if the individual has
completed (before the beginning of such taxable
year) the equivalent of the first 4 years of post-
secondary education at an eligible educational insti-
tution (determined under the rules of section 25A).
taxable year to an education investment account
to the extent that such contribution exceeds the
limitation in section 4973(e) if such distribution
(and the net income with respect to such excess
contribution) meet requirements comparable to
the requirements of section 529(f)(3).
‘‘(4) ROLLOVER
CONTRIBUTIONS—Paragraph
(1) shall not apply to any amount paid or distrib-
uted from an education investment account to the
extent that the amount received is paid into another
education investment account for the benefit of the
account holder or a member of the family (within
the meaning of section 529(e)(2)) of the account
holder not later than the 60th day after the date of
such payment or distribution. The preceding sen-
tence shall not apply to any payment or distribution
if it applied to any prior payment or distribution
during the 12-month period ending on the date of
the payment or distribution.
‘‘(5) CHANGE
IN
ACCOUNT
HOLDER.—Any
change in the account holder of an education invest-
ment account shall not be treated as a distribution
for purposes of paragraph (1) if the new account
holder is a member of the family (as so defined) of
the old account holder.
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this subsection, for purposes of determining the
amount of any loss on a sale or exchange of an in-
terest in a partnership, S corporation, or common
trust fund, the adjustment made under subsection
(a) shall not be taken into account in determining
the adjusted basis of such interest.
‘‘(g) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(h) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT.—If any person transfers cash, debt, or any other
property to another person and the principal purpose of
such transfer is to secure or increase an adjustment under
subsection (a), the Secretary may disallow part or all of
such adjustment or increase.
470
section 1296(k) is in effect occurring after October
31 of such year,’’.
(d) CONFORMING AMENDMENTS.—
(1) Sections 532(b)(4) and 542(c)(10) are each
amended by striking ‘‘section 1296’’ and inserting
‘‘section 1297’’.
(2) Subsection (f) of section 551 is amended by
striking ‘‘section 1297(b)(5)’’ and inserting ‘‘section
1298(b)(5)’’.
(3) Subsections (a)(1) and (d) of section 1293
are each amended by striking ‘‘section 1297(a)’’ and
inserting ‘‘section 1298(a)’’.
(4) Paragraph (3) of section 1297(b), as redes-
ignated by subsection (a), is hereby repealed.
(5) The table of sections for subpart D of part
VI of subchapter P of chapter 1, as redesignated by
subsection (a), is amended to read as follows:
‘‘Sec. 1297. Passive foreign investment company.
‘‘Sec. 1298. Special rules.’’.
(6) The table of subparts for part VI of sub-
chapter P of chapter 1 is amended by striking the
last item and inserting the following new items:
‘‘Subpart C. Election of mark to market for marketable stock.
‘‘Subpart D. General provisions.’’.
(e) CLARIFICATION OF GAIN RECOGNITION ELEC-
TION.—The last sentence of section 1298(b)(1), as so re-
designated, is amended by inserting ‘‘(determined without