I 
112TH CONGRESS 
2D SESSION 
H. R. 6225 
To amend the Internal Revenue Code of 1986 to provide for economic growth 
and personal financial liberty, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JULY 26, 2012 
Mr. WALBERG 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 economic growth and personal financial liberty, and 
for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. TABLE OF CONTENTS. 
The table of contents for this Act is as follows: 
Sec. 1. Table of contents. 
Sec. 2. Findings. 
TITLE I—EGTRRA, JGTRRA, AND CERTAIN OTHER TAX RELIEF 
MADE PERMANENT 
Sec. 101. EGTRRA, JGTRRA, and certain other tax relief made permanent. 
TITLE II—DEATH TAX REPEAL PERMANENCY 
Sec. 201. Repeal of estate and generation-skipping transfer taxes. 
Sec. 202. Modifications of gift tax. 
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TITLE III—ALTERNATIVE MINIMUM TAX RELIEF 
Sec. 301. Extension for individuals. 
TITLE IV—CAPITAL GAINS INFLATION RELIEF 
Sec. 401. Indexing of certain assets for purposes of determining gain or loss. 
SEC. 2. FINDINGS. 
The Congress finds the following: 
(1) According to the Tax Foundation, this year, 
before being able to work for themselves, Americans 
will work 107 days out of the year just to pay their 
taxes. 
(2) Tax Freedom Day, the day when Americans 
have finally earned enough money to pay their tax 
bills for the year and can begin to work for them-
selves, fell on April 17th. 
(3) Taxes are a greater burden on the family 
budget than food, clothing, and housing combined. 
(4) The Federal tax burden was 15.4 percent of 
gross domestic product in 2011. 
(5) The historical Federal tax burden of the 
previous few decades is 18.0 percent of gross domes-
tic product. 
(6) Under current law, the tax burden will rise 
to 21.0 percent of gross domestic product within ten 
years, which would be the highest tax burden in 
United States history, even during wartime. 
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(7) Families and business cannot bear a tax in-
crease of this magnitude. 
TITLE I—EGTRRA, JGTRRA, AND 
CERTAIN OTHER TAX RELIEF 
MADE PERMANENT 
SEC. 101. EGTRRA, JGTRRA, AND CERTAIN OTHER TAX RE-
LIEF MADE PERMANENT. 
(a) ECONOMIC GROWTH
AND TAX RELIEF REC-
ONCILIATION ACT OF 2001.—Title IX of the Economic 
Growth and Tax Relief Reconciliation Act of 2001 is here-
by repealed. 
(b) INCOME TAX RATES ON DIVIDENDS AND NET 
CAPITAL GAIN.—Section 303 of the Jobs and Growth Tax 
Relief Reconciliation Act of 2003 is hereby repealed. 
(c) DEDUCTION
FOR STATE
AND LOCAL SALES 
TAXES.—Paragraph (5) of section 164(b) of the Internal 
Revenue Code of 1986 is amended by striking subpara-
graph (I). 
(d) DEDUCTION FOR TUITION AND RELATED EX-
PENSES.—Section 222 of such Code is amended by strik-
ing subsection (e). 
(e) INCREASED
EXPENSING
FOR
SMALL
BUSI-
NESS.— 
(1) DOLLAR
LIMITATION.—Paragraph (1) of 
section 179(b) of such Code is amended by striking 
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subparagraphs (C) and (D) and inserting the fol-
lowing new subparagraph: 
‘‘(C) $125,000 in the case of taxable years 
beginning after 2011.’’. 
(2) INCREASE IN QUALIFYING INVESTMENT AT 
WHICH PHASEOUT BEGINS.—Paragraph (2) of sec-
tion 179(b) of such Code is amended by striking 
subparagraphs (C) and (D) and inserting the fol-
lowing new subparagraph: 
‘‘(C) $500,000 in the case of taxable years 
beginning after 2011.’’. 
(3) INFLATION ADJUSTMENTS.—Paragraph (6) 
of section 179 of such Code is amended to read as 
follows: 
‘‘(6) INFLATION ADJUSTMENTS.— 
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning in a calendar year after 
2012, the $125,000 and $500,000 amounts in 
paragraphs (1)(C) and (2)(C) shall each be in-
creased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, by substituting ‘calendar year 2011’ 
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for ‘calendar year 1992’ in subparagraph 
(B) thereof. 
‘‘(B) ROUNDING.— 
‘‘(i) DOLLAR
LIMITATION.—If the 
amount in paragraph (1)(C), as increased 
under subparagraph (A), is not a multiple 
of $1,000, such amount shall be rounded 
to the nearest multiple of $1,000. 
‘‘(ii) PHASEOUT
AMOUNT.—If the 
amount in paragraph (2)(C), as increased 
under subparagraph (A), is not a multiple 
of $10,000, such amount shall be rounded 
to the nearest multiple of $10,000.’’. 
(4) REVOCATION
OF
ELECTION.—Paragraph 
(2) of section 179(c) of such Code (relating to elec-
tion irrevocable) is amended by striking ‘‘and before 
2013’’. 
(5) COMPUTER SOFTWARE.—Clause (ii) of sec-
tion 179(d)(1)(A) of such Code is amended by strik-
ing ‘‘and before 2012’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of the enactment 
of this Act. 
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TITLE II—DEATH TAX REPEAL 
PERMANENCY 
SEC. 201. REPEAL OF ESTATE AND GENERATION-SKIPPING 
TRANSFER TAXES. 
(a) ESTATE TAX REPEAL.—Subchapter C of chapter 
11 of subtitle B of the Internal Revenue Code of 1986 
is amended by adding at the end the following new section: 
‘‘SEC. 2210. TERMINATION. 
‘‘(a) IN GENERAL.—Except as provided in subsection 
(b), this chapter shall not apply to the estates of decedents 
dying on or after the date of the enactment of this section. 
‘‘(b) CERTAIN DISTRIBUTIONS FROM QUALIFIED 
DOMESTIC TRUSTS.—In applying section 2056A with re-
spect to the surviving spouse of a decedent dying before 
the date of the enactment of this section— 
‘‘(1) section 2056A(b)(1)(A) shall not apply to 
distributions made after the 10-year period begin-
ning on such date, and 
‘‘(2) section 2056A(b)(1)(B) shall not apply on 
or after such date.’’. 
(b) GENERATION-SKIPPING
TRANSFER
TAX
RE-
PEAL.—Subchapter G of chapter 13 of subtitle B of such 
Code is amended by adding at the end the following new 
section: 
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‘‘SEC. 2664. TERMINATION. 
‘‘This chapter shall not apply to generation-skipping 
transfers on or after the date of the enactment of this 
section.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) The table of sections for subchapter C of 
chapter 11 is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 2210. Termination.’’. 
(2) The table of sections for subchapter G of 
chapter 13 is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 2664. Termination.’’. 
(d) RESTORATION
OF PRE-EGTRRA PROVISIONS 
NOT APPLICABLE.— 
(1) IN GENERAL.—Section 301 of the Tax Re-
lief, Unemployment Insurance Reauthorization, and 
Job Creation Act of 2010 shall not apply to estates 
of decedents dying, and transfers made, on or after 
the date of the enactment of this Act. 
(2) EXCEPTION
FOR
STEPPED-UP
BASIS.— 
Paragraph (1) shall not apply to the provisions of 
law amended by subtitle E of title V of the Eco-
nomic Growth and Tax Relief Reconciliation Act of 
2001 (relating to carryover basis at death; other 
changes taking effect with repeal). 
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(e) SUNSET NOT APPLICABLE.— 
(1) Section 901 of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 shall not 
apply to title V of such Act in the case of estates 
of decedents dying, and transfers made, on or after 
the date of the enactment of this Act. 
(2) Section 304 of the Tax Relief, Unemploy-
ment Insurance Reauthorization, and Job Creation 
Act of 2010 is hereby repealed. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to the estates of decedents dying, 
and generation-skipping transfers, after the date of the 
enactment of this Act. 
SEC. 202. MODIFICATIONS OF GIFT TAX. 
(a) COMPUTATION OF GIFT TAX.—Subsection (a) of 
section 2502 of the Internal Revenue Code of 1986 is 
amended to read as follows: 
‘‘(a) COMPUTATION OF TAX.— 
‘‘(1) IN GENERAL.—The tax imposed by section 
2501 for each calendar year shall be an amount 
equal to the excess of— 
‘‘(A) a tentative tax, computed under para-
graph (2), on the aggregate sum of the taxable 
gifts for such calendar year and for each of the 
preceding calendar periods, over 
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‘‘(B) a tentative tax, computed under para-
graph (2), on the aggregate sum of the taxable 
gifts for each of the preceding calendar periods. 
‘‘(2) RATE SCHEDULE.— 
‘‘If the amount with respect to which the 
tentative tax to be computed is:.
The tentative tax 
is: 
Not over $10,000 ...........................................................
18% of such amount. 
Over $10,000 but not over $20,000 ..............................
$1,800, plus 20% of 
the excess over 
$10,000. 
Over $20,000 but not over $40,000 ..............................
$3,800, plus 22% of 
the excess over 
$20,000. 
Over $40,000 but not over $60,000 ..............................
$8,200, plus 24% of 
the excess over 
$40,000. 
Over $60,000 but not over $80,000 ..............................
$13,000, plus 26% of 
the excess over 
$60,000. 
Over $80,000 but not over $100,000 ............................
$18,200, plus 28% of 
the excess over 
$80,000. 
Over $100,000 but not over $150,000 ..........................
$23,800, plus 30% of 
the excess over 
$100,000. 
Over $150,000 but not over $250,000 ..........................
$38,800, plus 32% of 
the excess of 
$150,000. 
Over $250,000 but not over $500,000 ..........................
$70,800, plus 34% of 
the excess over 
$250,000. 
Over $500,000 ...............................................................
$155,800, plus 35% of 
the excess of 
$500,000.’’. 
(b) TREATMENT
OF
CERTAIN
TRANSFERS
IN 
TRUST.—Section 2511 (relating to transfers in general) 
is amended by adding at the end the following new sub-
section: 
‘‘(c) TREATMENT
OF
CERTAIN
TRANSFERS
IN 
TRUST.—Notwithstanding any other provision of this sec-
tion and except as provided in regulations, a transfer in 
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trust shall be treated as a taxable gift under section 2503, 
unless the trust is treated as wholly owned by the donor 
or the donor’s spouse under subpart E of part I of sub-
chapter J of chapter 1.’’. 
(c) LIFETIME GIFT EXEMPTION.—Paragraph (1) of 
section 2505(a) of the Internal Revenue Code of 1986 is 
amended to read as follows: 
‘‘(1) the amount of the tentative tax which 
would be determined under the rate schedule set 
forth in section 2502(a)(2) if the amount with re-
spect to which such tentative tax is to be computed 
were $5,000,000, reduced by’’. 
(d) CONFORMING AMENDMENTS.— 
(1) Section 2505(a) of such Code is amended 
by striking the last sentence. 
(2) The heading for section 2505 of such Code 
is amended by striking ‘‘UNIFIED’’. 
(3) The item in the table of sections for sub-
chapter A of chapter 12 of such Code relating to 
section 2505 is amended to read as follows: 
‘‘Sec. 2505. Credit against gift tax.’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to gifts made on or after the date 
of the enactment of this Act. 
(f) TRANSITION RULE.— 
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(1) IN
GENERAL.—For purposes of applying 
sections 1015(d), 2502, and 2505 of the Internal 
Revenue Code of 1986, the calendar year in which 
this Act is enacted shall be treated as 2 separate cal-
endar years one of which ends on the day before the 
date of the enactment of this Act and the other of 
which begins on such date of enactment. 
(2) APPLICATION
OF
SECTION 2504(b).—For 
purposes of applying section 2504(b) of the Internal 
Revenue Code of 1986, the calendar year in which 
this Act is enacted shall be treated as one preceding 
calendar period. 
TITLE III—ALTERNATIVE 
MINIMUM TAX RELIEF 
SEC. 301. EXTENSION FOR INDIVIDUALS. 
(a) EXTENSION OF EXEMPTION AMOUNT.—Section 
55(d)(1) of the Internal Revenue Code of 1986 is amended 
by inserting ‘‘or 2012’’ after ‘‘2011’’ each place it appears 
in subparagraphs (A) and (B). 
(b) EXTENSION OF ALTERNATIVE MINIMUM TAX RE-
LIEF FOR NONREFUNDABLE PERSONAL CREDITS.—Sec-
tion 26(a)(2) of such Code is amended— 
(1) by striking ‘‘during 2000, 2001, 2002, 
2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 
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or 2011’’ and inserting ‘‘after 1999 and before 
2013’’, and 
(2) by striking ‘‘2011’’ in the heading thereof 
and inserting ‘‘2012’’. 
(c) ADJUSTMENT FOR INFLATION.—Section 55(d) of 
such Code is amended by adding at the end the following 
new paragraph: 
‘‘(4) ADJUSTMENT FOR INFLATION.— 
‘‘(A) IN
GENERAL.—In the case of any 
taxable year beginning in a calendar year after 
2011, the dollar amounts for 2011 in subpara-
graphs (A) and (B) of paragraph (1) for 2011 
shall each be increased by an amount equal 
to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for the cal-
endar year in which the taxable year be-
gins, by substituting ‘calendar year 2010’ 
for ‘calendar year 1992’ in subparagraph 
(B) thereof. 
‘‘(B) ROUNDING.—If any amount in para-
graph (1), as increased under subparagraph 
(A), is not a multiple of $50, such amount shall 
be rounded to the nearest multiple of $50.’’. 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2011. 
TITLE IV—CAPITAL GAINS 
INFLATION RELIEF 
SEC. 401. INDEXING OF CERTAIN ASSETS FOR PURPOSES 
OF DETERMINING GAIN OR LOSS. 
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to 
basis rules of general application) is amended by redesig-
nating section 1023 as section 1024 and by inserting after 
section 1022 the following new section: 
‘‘SEC. 1023. INDEXING OF CERTAIN ASSETS FOR PURPOSES 
OF DETERMINING GAIN OR LOSS. 
‘‘(a) GENERAL RULE.— 
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Solely for purposes of determining 
gain or loss on the sale or other disposition by a tax-
payer (other than a corporation) of an indexed asset 
which has been held for more than 3 years, the in-
dexed basis of the asset shall be substituted for its 
adjusted basis. 
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.— 
The deductions for depreciation, depletion, and am-
ortization shall be determined without regard to the 
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application of paragraph (1) to the taxpayer or any 
other person. 
‘‘(3) WRITTEN
DOCUMENTATION
REQUIRE-
MENT.—Paragraph (1) shall apply only with respect 
to indexed assets for which the taxpayer has written 
documentation of the original purchase price paid or 
incurred by the taxpayer to acquire such asset. 
‘‘(b) INDEXED ASSET.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means— 
‘‘(A) common stock in a C corporation 
(other than a foreign corporation), or 
‘‘(B) tangible property, 
which is a capital asset or property used in the trade 
or business (as defined in section 1231(b)). 
‘‘(2) STOCK
IN
CERTAIN
FOREIGN
CORPORA-
TIONS INCLUDED.—For purposes of this section— 
‘‘(A) IN
GENERAL.—The term ‘indexed 
asset’ includes common stock in a foreign cor-
poration which is regularly traded on an estab-
lished securities market. 
‘‘(B) 
EXCEPTION.—Subparagraph 
(A) 
shall not apply to— 
‘‘(i) stock of a foreign investment 
company, 
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‘‘(ii) stock in a passive foreign invest-
ment company (as defined in section 
1296), 
‘‘(iii) stock in a foreign corporation 
held by a United States person who meets 
the requirements of section 1248(a)(2), 
and 
‘‘(iv) stock in a foreign personal hold-
ing company. 
‘‘(C) TREATMENT OF AMERICAN DEPOSI-
TORY RECEIPTS.—An American depository re-
ceipt for common stock in a foreign corporation 
shall be treated as common stock in such cor-
poration. 
‘‘(c) INDEXED BASIS.—For purposes of this sec-
tion— 
‘‘(1) GENERAL RULE.—The indexed basis for 
any asset is— 
‘‘(A) the adjusted basis of the asset, in-
creased by 
‘‘(B) the applicable inflation adjustment. 
‘‘(2) APPLICABLE INFLATION ADJUSTMENT.— 
The applicable inflation adjustment for any asset is 
an amount equal to— 
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‘‘(A) the adjusted basis of the asset, multi-
plied by 
‘‘(B) the percentage (if any) by which— 
‘‘(i) 
the 
gross 
domestic 
product 
deflator for the last calendar quarter end-
ing before the asset is disposed of, exceeds 
‘‘(ii) the gross domestic product 
deflator for the last calendar quarter end-
ing before the asset was acquired by the 
taxpayer. 
The percentage under subparagraph (B) shall be 
rounded to the nearest 1⁄10 of 1 percentage point. 
‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.— 
The gross domestic product deflator for any cal-
endar quarter is the implicit price deflator for the 
gross domestic product for such quarter (as shown 
in the last revision thereof released by the Secretary 
of Commerce before the close of the following cal-
endar quarter). 
‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE DI-
MINISHED
RISK
OF
LOSS; TREATMENT
OF
SHORT 
SALES.— 
‘‘(1) IN GENERAL.—If the taxpayer (or a re-
lated person) enters into any transaction which sub-
stantially reduces the risk of loss from holding any 
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asset, such asset shall not be treated as an indexed 
asset for the period of such reduced risk. 
‘‘(2) SHORT SALES.— 
‘‘(A) IN GENERAL.—In the case of a short 
sale of an indexed asset with a short sale period 
in excess of 3 years, for purposes of this title, 
the amount realized shall be an amount equal 
to the amount realized (determined without re-
gard to this paragraph) increased by the appli-
cable inflation adjustment. In applying sub-
section (c)(2) for purposes of the preceding sen-
tence, the date on which the property is sold 
short shall be treated as the date of acquisition 
and the closing date for the sale shall be treat-
ed as the date of disposition. 
‘‘(B) SHORT SALE PERIOD.—For purposes 
of subparagraph (A), the short sale period be-
gins on the day that the property is sold and 
ends on the closing date for the sale. 
‘‘(e) TREATMENT
OF
REGULATED
INVESTMENT 
COMPANIES AND REAL ESTATE INVESTMENT TRUSTS.— 
‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, the adjustment 
under subsection (a) shall be allowed to any 
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qualified investment entity (including for pur-
poses of determining the earnings and profits of 
such entity). 
‘‘(B) EXCEPTION FOR CORPORATE SHARE-
HOLDERS.—Under regulations— 
‘‘(i) in the case of a distribution by a 
qualified investment entity (directly or in-
directly) to a corporation— 
‘‘(I) the determination of whether 
such distribution is a dividend shall be 
made without regard to this section, 
and 
‘‘(II) the amount treated as gain 
by reason of the receipt of any capital 
gain dividend shall be increased by the 
percentage by which the entity’s net 
capital gain for the taxable year (de-
termined without regard to this sec-
tion) exceeds the entity’s net capital 
gain for such year determined with re-
gard to this section, and 
‘‘(ii) there shall be other appropriate 
adjustments (including deemed distribu-
tions) so as to ensure that the benefits of 
this section are not allowed (directly or in-
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directly) to corporate shareholders of quali-
fied investment entities. 
For purposes of the preceding sentence, any 
amount includible in gross income under section 
852(b)(3)(D) shall be treated as a capital gain 
dividend and an S corporation shall not be 
treated as a corporation. 
‘‘(C) 
EXCEPTION
FOR
QUALIFICATION 
PURPOSES.—This section shall not apply for 
purposes of sections 851(b) and 856(c). 
‘‘(D) EXCEPTION FOR CERTAIN TAXES IM-
POSED AT ENTITY LEVEL.— 
‘‘(i) TAX ON FAILURE TO DISTRIBUTE 
ENTIRE GAIN.—If any amount is subject to 
tax under section 852(b)(3)(A) for any 
taxable year, the amount on which tax is 
imposed under such section shall be in-
creased by the percentage determined 
under subparagraph (B)(i)(II). A similar 
rule shall apply in the case of any amount 
subject to tax under paragraph (2) or (3) 
of section 857(b) to the extent attributable 
to the excess of the net capital gain over 
the deduction for dividends paid deter-
mined with reference to capital gain divi-
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dends only. The first sentence of this 
clause shall not apply to so much of the 
amount subject to tax under section 
852(b)(3)(A) as is designated by the com-
pany under section 852(b)(3)(D). 
‘‘(ii) OTHER
TAXES.—This section 
shall not apply for purposes of determining 
the amount of any tax imposed by para-
graph (4), (5), or (6) of section 857(b). 
‘‘(2) ADJUSTMENTS
TO
INTERESTS
HELD
IN 
ENTITY.— 
‘‘(A) REGULATED
INVESTMENT
COMPA-
NIES.—Stock in a regulated investment com-
pany (within the meaning of section 851) shall 
be an indexed asset for any calendar quarter in 
the same ratio as— 
‘‘(i) the average of the fair market 
values of the indexed assets held by such 
company at the close of each month during 
such quarter, bears to 
‘‘(ii) the average of the fair market 
values of all assets held by such company 
at the close of each such month. 
‘‘(B) 
REAL
ESTATE
INVESTMENT 
TRUSTS.—Stock in a real estate investment 
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trust (within the meaning of section 856) shall 
be an indexed asset for any calendar quarter in 
the same ratio as— 
‘‘(i) the fair market value of the in-
dexed assets held by such trust at the close 
of such quarter, bears to 
‘‘(ii) the fair market value of all as-
sets held by such trust at the close of such 
quarter. 
‘‘(C) RATIO OF 80 PERCENT OR MORE.—If 
the ratio for any calendar quarter determined 
under subparagraph (A) or (B) would (but for 
this subparagraph) be 80 percent or more, such 
ratio for such quarter shall be 100 percent. 
‘‘(D) RATIO OF 20 PERCENT OR LESS.—If 
the ratio for any calendar quarter determined 
under subparagraph (A) or (B) would (but for 
this subparagraph) be 20 percent or less, such 
ratio for such quarter shall be zero. 
‘‘(E) LOOK-THRU OF PARTNERSHIPS.—For 
purposes of this paragraph, a qualified invest-
ment entity which holds a partnership interest 
shall be treated (in lieu of holding a partnership 
interest) as holding its proportionate share of 
the assets held by the partnership. 
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‘‘(3) TREATMENT OF RETURN OF CAPITAL DIS-
TRIBUTIONS.—Except as otherwise provided by the 
Secretary, a distribution with respect to stock in a 
qualified investment entity which is not a dividend 
and which results in a reduction in the adjusted 
basis of such stock shall be treated as allocable to 
stock acquired by the taxpayer in the order in which 
such stock was acquired. 
‘‘(4) QUALIFIED
INVESTMENT
ENTITY.—For 
purposes of this subsection, the term ‘qualified in-
vestment entity’ means— 
‘‘(A) a regulated investment company 
(within the meaning of section 851), and 
‘‘(B) a real estate investment trust (within 
the meaning of section 856). 
‘‘(f) OTHER PASS-THRU ENTITIES.— 
‘‘(1) PARTNERSHIPS.— 
‘‘(A) IN GENERAL.—In the case of a part-
nership, the adjustment made under subsection 
(a) at the partnership level shall be passed 
through to the partners. 
‘‘(B) SPECIAL RULE IN THE CASE OF SEC-
TION 754 ELECTIONS.—In the case of a transfer 
of an interest in a partnership with respect to 
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which the election provided in section 754 is in 
effect— 
‘‘(i) the adjustment under section 
743(b)(1) shall, with respect to the trans-
feror partner, be treated as a sale of the 
partnership assets for purposes of applying 
this section, and 
‘‘(ii) with respect to the transferee 
partner, the partnership’s holding period 
for purposes of this section in such assets 
shall be treated as beginning on the date 
of such adjustment. 
‘‘(2) S CORPORATIONS.—In the case of an S 
corporation, the adjustment made under subsection 
(a) at the corporate level shall be passed through to 
the shareholders. This section shall not apply for 
purposes of determining the amount of any tax im-
posed by section 1374 or 1375. 
‘‘(3) COMMON TRUST FUNDS.—In the case of a 
common trust fund, the adjustment made under sub-
section (a) at the trust level shall be passed through 
to the participants. 
‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN 
DETERMINING LOSS ON SALE OF INTEREST IN ENTI-
TY.—Notwithstanding the preceding provisions of 
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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. 
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‘‘(i) SPECIAL RULES.—For purposes of this section— 
‘‘(1) TREATMENT OF IMPROVEMENTS, ETC.—If 
there is an addition to the adjusted basis of any tan-
gible property or of any stock in a corporation dur-
ing the taxable year by reason of an improvement to 
such property or a contribution to capital of such 
corporation— 
‘‘(A) such addition shall never be taken 
into account under subsection (c)(1)(A) if the 
aggregate amount thereof during the taxable 
year with respect to such property or stock is 
less than $1,000, and 
‘‘(B) such addition shall be treated as a 
separate asset acquired at the close of such tax-
able year if the aggregate amount thereof dur-
ing the taxable year with respect to such prop-
erty or stock is $1,000 or more. 
A rule similar to the rule of the preceding sentence 
shall apply to any other portion of an asset to the 
extent that separate treatment of such portion is ap-
propriate to carry out the purposes of this section. 
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS 
THROUGHOUT HOLDING PERIOD.—The applicable in-
flation adjustment shall be appropriately reduced for 
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periods during which the asset was not an indexed 
asset. 
‘‘(3) TREATMENT
OF
CERTAIN
DISTRIBU-
TIONS.—A distribution with respect to stock in a 
corporation which is not a dividend shall be treated 
as a disposition. 
‘‘(4) SECTION
CANNOT
INCREASE
ORDINARY 
LOSS.—To the extent that (but for this paragraph) 
this section would create or increase a net ordinary 
loss to which section 1231(a)(2) applies or an ordi-
nary loss to which any other provision of this title 
applies, such provision shall not apply. The taxpayer 
shall be treated as having a long-term capital loss in 
an amount equal to the amount of the ordinary loss 
to which the preceding sentence applies. 
‘‘(5) ACQUISITION
DATE
WHERE
THERE
HAS 
BEEN
PRIOR
APPLICATION
OF
SUBSECTION (a)(1) 
WITH RESPECT TO THE TAXPAYER.—If there has 
been a prior application of subsection (a)(1) to an 
asset while such asset was held by the taxpayer, the 
date of acquisition of such asset by the taxpayer 
shall be treated as not earlier than the date of the 
most recent such prior application. 
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‘‘(j) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part II of subchapter O of chapter 1 of such Code 
is amended by striking the item relating to section 1023 
and by inserting after the item relating to section 1022 
the following new item: 
‘‘Sec. 1023. Indexing of certain assets for purposes of determining gain or loss. 
‘‘Sec. 1024. Cross references.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to indexed assets acquired by the 
taxpayer after December 31, 2012, in taxable years ending 
after such date. 
Æ 
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