(1) Subsection (h) of section 1 of such Code is
hereby repealed.
(2) Section 62(a) of such Code is amended by
inserting after paragraph (13) the following new
paragraph:
‘‘(14) CAPITAL GAINS DEDUCTION.—The deduc-
tion allowed by section 1202.’’
(3) Clause (ii) of section 163(d)(4)(B) of such
Code is amended by inserting ‘‘, reduced by the
amount of any deduction allowable under section
1202 attributable to gain from such property’’ after
‘‘investment’’.
(4) Section 170(e)(1)(B) of such Code is
amended by inserting ‘‘(or, in the case of a taxpayer
other than a corporation, 50 percent of the amount
of gain)’’ after ‘‘the amount of gain’’.
(5)(A) Section 172(d)(2) of such Code is
amended to read as follows:
‘‘(2) CAPITAL
GAINS
AND
LOSSES
OF
TAX-
PAYERS OTHER THAN CORPORATIONS.—In the case
of a taxpayer other than a corporation—
‘‘(A) the amount deductible on account of
losses from sales or exchanges of capital assets
shall not exceed the amount includible on ac-
count of gains from sales or exchanges of cap-
ital assets; and
‘‘(B) the deduction provided by section
1202 shall not be allowed.’’
(B) Subparagraph (B) of section 172(d)(4) of
such Code is amended by inserting ‘‘, (2)(B),’’ after
‘‘paragraph (1)’’.
(6)(A) Section 221 of such Code is amended to
read as follows:
‘‘SEC. 221. CROSS REFERENCES.
‘‘(1) For deduction for net capital gain, see section
1202.
‘‘(2) For deductions in respect of a decedent, see
section 691.’’
(B) The table of sections for part VII of sub-
chapter B of chapter 1 is amended by striking ‘‘ref-
erence’’ in the item relating to section 221 and in-
serting ‘‘references’’.
(7) Paragraph (4) of section 642(c) of such
Code is amended to read as follows:
‘‘(4) ADJUSTMENTS.—To the extent that the
amount otherwise allowable as a deduction under
this subsection consists of gain from the sale or ex-
change of capital assets held for more than 1 year,
proper adjustment shall be made for any deduction
allowable to the estate or trust under section 1202
(relating to deduction for net capital gain). In the
case of a trust, the deduction allowed by this sub-
section shall be subject to section 681 (relating to
unrelated business income).’’
(8) Paragraph (3) of section 643(a) of such
Code is amended by adding at the end thereof the
following new sentence: ‘‘The deduction under sec-
tion 1202 (relating to deduction for net capital gain)
shall not be taken into account.’’.
(9) Paragraph (6)(C) of section 643(a) of such
Code is amended—
(A) by inserting ‘‘(i)’’ before ‘‘there’’, and
(B) by inserting ‘‘, and (ii) the deduction
under section 1202 (relating to deduction for
excess of capital gains over capital losses)’’ be-
fore the period at the end thereof.
(10) Paragraph (4) of section 691(c) of such
Code is amended by striking ‘‘1(h), 1201’’ and in-
serting ‘‘1201, 1202,’’.
(11) The second sentence of paragraph (2) of
section 871(a) of such Code is amended by inserting
‘‘such gains and losses shall be determined without
regard to section 1202 (relating to deduction for net
capital gain) and’’ after ‘‘except that’’.
(12)(A) Subparagraph (B) of section 904(b)(2)
of such Code is amended by striking so much of
such subparagraph as precedes clause (i) and insert-
ing the following:
‘‘(B) SPECIAL RULES WHERE CORPORATE
CAPITAL
RATE
GAIN
DIFFERENTIAL.—In the
case of a corporation, for any taxable year for
which there is a capital gain rate differen-
tial—’’.
(B) Subparagraphs (D) and (E) of section
904(b)(3) of such Code are amended to read as fol-
lows:
‘‘(D) CAPITAL
GAIN
RATE
DIFFEREN-
TIAL.—There is a capital gain rate differential
for any taxable year if any rate of tax imposed
by section 11, 511, or 831(a) or (b) (whichever
applies) exceeds the alternative rate of tax
under section 1201(a) (determined without re-
gard to the last sentence of section 11(b)(1)).
‘‘(E) RATE DIFFERENTIAL PORTION.—The
rate differential portion of foreign source net
capital gain, net capital, or the excess of net
capital gain from sources within the United
States over net capital gain, as the case maybe,
is the same proportion of such amount as—
‘‘(i) the excess of the highest rate of
tax specified in section 11(b)(1) over the
alternative rate of tax under section
1201(a), bears to
‘‘(ii) the highest rate of tax specified
in section 11(b)(1).’’
(13) Section 1402(i)(1) of such Code is amend-
ed to read as follows:
‘‘(1) IN
GENERAL.—In determining the net
earnings from self-employment of any options dealer
or commodities dealer—
‘‘(A) notwithstanding subsection (a)(3)(A),
there shall not be excluded any gain or loss (in
the normal course of the taxpayer’s activity of
dealing in or trading section 1256 contracts)
from section 1256 contracts or property related
to such contracts, and
‘‘(B) the deduction provided by section
1202 shall not apply.’’
(d) CLERICAL AMENDMENT.—The table of sections
for part I of subchapter P of chapter 1 of such Code is
amended by adding at the end thereof the following new
item:
‘‘Sec. 1202. Deduction for capital gains.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
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