H. R. 2488—43 
‘‘(A) IN GENERAL.—Subsection (b) shall not apply to 
amounts paid for eligible former prescription drugs for 
a medicare beneficiary who is the taxpayer or the 
taxpayer’s spouse or dependent (as defined in section 152). 
‘‘(B) ELIGIBLE FORMER PRESCRIPTION DRUG.—For pur-
poses of subparagraph (A), the term ‘eligible former 
prescription drug’ means any drug or biological which is 
not a prescribed drug at the time purchased by the taxpayer 
but was a prescribed drug at any prior time during the 
calendar year in which so purchased or during the 2 pre-
ceding calendar years. 
‘‘(2) ADJUSTED GROSS INCOME THRESHOLD NOT TO APPLY 
TO PRESCRIPTION DRUG INSURANCE COVERAGE FOR MEDICARE 
BENEFICIARIES IF CERTAIN CONDITIONS MET.—The 7.5 percent 
adjusted gross income threshold in subsection (a) shall not 
apply to the expenses paid during the taxable year for prescrip-
tion drug insurance coverage for a medicare beneficiary who 
is the taxpayer or the taxpayer’s spouse or dependent (as 
defined in section 152) if— 
‘‘(A) the Secretary certifies that, throughout such tax-
able year, the conditions specified in paragraph (3) are 
met, and 
‘‘(B) the charge for such coverage is either separately 
stated in the contract or furnished to the policyholder by 
the insurance company in a separate statement. 
‘‘(3) CONDITIONS.—For purposes of paragraph (2), the condi-
tions specified in this paragraph are met if all of the following 
are in effect: 
‘‘(A) ASSISTANCE FOR PRESCRIPTION DRUGS FOR LOW- 
INCOME MEDICARE BENEFICIARIES.— 
‘‘(i) Low-income assistance is available to enable 
the purchase of coverage of prescription drugs as 
described in subparagraph (B) or (C) for medicare bene-
ficiaries with incomes under 135 percent of the 
applicable Federal poverty level, with such assistance 
phasing out for beneficiaries with incomes between 
135 percent and 150 percent of such level. 
‘‘(ii) The Federal Government provides funding for 
the costs of such assistance. 
‘‘(B) AUTHORIZING
MEDIGAP
COVERAGE
SOLELY
OF 
PRESCRIPTION DRUGS.—At least one of the benefit packages 
authorized to be offered under a medicare supplemental 
policy under the Social Security Act is a package which 
provides solely for the coverage of costs of prescription 
drugs. 
‘‘(C) STRUCTURAL
MEDICARE
REFORM.—Coverage for 
outpatient prescription drugs for medicare beneficiaries is 
provided only through integrated comprehensive health 
plans which offer current medicare covered services and 
maximum limitations on out-of-pocket spending and such 
comprehensive plans sponsored by the Health Care 
Financing Administration compete on the same basis as 
private plans. 
‘‘(D) DEDUCTION FOR ELIGIBLE FORMER PRESCRIPTION 
DRUGS.—The treatment under paragraph (1) of expenses 
paid for eligible former prescription drugs applies for such 
taxable year. 
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H. R. 2488—44 
‘‘(4) DEFINITION AND SPECIAL RULE.— 
‘‘(A) MEDICARE BENEFICIARY.—For purposes of this sub-
section, the term ‘medicare beneficiary’ means an individual 
who is entitled to benefits under part A, or enrolled under 
part B or C, of title XVIII of the Social Security Act. 
‘‘(B) COORDINATION WITH OTHER EXPENSES.—Expenses 
to which the 7.5 percent adjusted gross income threshold 
in subsection (a) does not apply by reason of paragraph 
(1) and (2) shall not be taken into account in applying 
such threshold to other expenses.’’. 
(b) DEDUCTION FOR PRESCRIPTION DRUG INSURANCE COVERAGE 
ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES OTHER DEDUC-
TIONS.—Subsection (a) of section 62 (defining adjusted gross income) 
is amended by inserting after paragraph (18) the following new 
paragraph: 
‘‘(19) PRESCRIPTION DRUG INSURANCE COVERAGE FOR MEDI-
CARE BENEFICIARIES.—The deduction allowed by section 213(a) 
to the extent of the expenses to which the 7.5 percent adjusted 
gross income threshold in subsection (a) does not apply by 
reason of paragraph (2) of section 213(e).’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to taxable years beginning after December 31, 2002. 
TITLE VI—ESTATE TAX RELIEF 
Subtitle A—Repeal of Estate, Gift, and 
Generation-Skipping Taxes; Repeal of 
Step Up in Basis At Death 
SEC. 601. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING 
TAXES. 
(a) IN GENERAL.—Subtitle B is hereby repealed. 
(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall 
apply to the estates of decedents dying, and gifts and generation- 
skipping transfers made, after December 31, 2008. 
SEC. 602. TERMINATION OF STEP UP IN BASIS AT DEATH. 
(a) TERMINATION OF APPLICATION OF SECTION 1014.—Section 
1014 (relating to basis of property acquired from a decedent) is 
amended by adding at the end the following: 
‘‘(f ) TERMINATION.—In the case of a decedent dying after 
December 31, 2008, this section shall not apply to property for 
which basis is provided by section 1023.’’. 
(b) CONFORMING AMENDMENT.—Subsection (a) of section 1016 
(relating to adjustments to basis) is amended by striking ‘‘and’’ 
at the end of paragraph (26), by striking the period at the end 
of paragraph (27) and inserting ‘‘; and’’, and by adding at the 
end the following: 
‘‘(28) to the extent provided in section 1023 (relating to 
basis for certain property acquired from a decedent dying after 
December 31, 2008).’’. 
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H. R. 2488—45 
SEC. 603. CARRYOVER BASIS AT DEATH. 
(a) GENERAL RULE.—Part II of subchapter O of chapter 1 
(relating to basis rules of general application) is amended by 
inserting after section 1022, as added by section 202, the following: 
‘‘SEC. 1023. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED 
FROM A DECEDENT DYING AFTER DECEMBER 31, 2008. 
‘‘(a) CARRYOVER BASIS.—Except as otherwise provided in this 
section, the basis of carryover basis property in the hands of a 
person acquiring such property from a decedent shall be determined 
under section 1015. 
‘‘(b) CARRYOVER BASIS PROPERTY DEFINED.— 
‘‘(1) IN GENERAL.—For purposes of this section, the term 
‘carryover basis property’ means any property— 
‘‘(A) which is acquired from or passed from a decedent 
who died after December 31, 2008, and 
‘‘(B) which is not excluded pursuant to paragraph (2). 
The property taken into account under subparagraph (A) shall 
be determined under section 1014(b) without regard to subpara-
graph (A) of the last sentence of paragraph (9) thereof. 
‘‘(2) CERTAIN PROPERTY NOT CARRYOVER BASIS PROPERTY.— 
The term ‘carryover basis property’ does not include— 
‘‘(A) any item of gross income in respect of a decedent 
described in section 691, 
‘‘(B) property which was acquired from the decedent 
by the surviving spouse of the decedent but only if the 
value of such property would have been deductible from 
the value of the taxable estate of the decedent under section 
2056, as in effect on the day before the date of the enact-
ment of the Taxpayer Refund and Relief Act of 1999, and 
‘‘(C) any includible property of the decedent if the 
aggregate adjusted fair market value of such property does 
not exceed $2,000,000. 
For purposes of this subsection, the term ‘adjusted fair market 
value’ means, with respect to any property, fair market value 
reduced by any indebtedness secured by such property. 
‘‘(3) LIMITATION
ON
EXCEPTION
FOR
PROPERTY
ACQUIRED 
BY SURVIVING SPOUSE.—The adjusted fair market value of prop-
erty which is not carryover basis property by reason of para-
graph (2)(B) shall not exceed $3,000,000. The executor shall 
allocate the limitation under the preceding sentence among 
such property. 
‘‘(4) PHASEIN OF CARRYOVER BASIS IF PROPERTY EXCEEDS 
$1,300,000.— 
‘‘(A) IN
GENERAL.—If the aggregate adjusted fair 
market value of the includible property of the decedent 
exceeds $1,300,000, but does not exceed $2,000,000, the 
amount of the increase in the basis of includible property 
which would (but for this paragraph) result under section 
1014 shall be reduced by the amount which bears the 
same ratio to such increase as such excess bears to 
$700,000. 
‘‘(B) ALLOCATION OF REDUCTION.—The reduction under 
subparagraph (A) shall be allocated among only the 
excepted includible property having net appreciation and 
shall be allocated in proportion to the respective amounts 
of such net appreciation. For purposes of the preceding 
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H. R. 2488—46 
sentence, the term ‘net appreciation’ means the excess of 
the adjusted fair market value over the decedent’s adjusted 
basis immediately before such decedent’s death. 
‘‘(5) INCLUDIBLE PROPERTY.— 
‘‘(A) IN GENERAL.—For purposes of this subsection, the 
term ‘includible property’ means property which would be 
included in the gross estate of the decedent under any 
of the following provisions as in effect on the day before 
the date of the enactment of the Taxpayer Refund and 
Relief Act of 1999: 
‘‘(i) Section 2033. 
‘‘(ii) Section 2038. 
‘‘(iii) Section 2040. 
‘‘(iv) Section 2041. 
‘‘(v) Section 2042(1). 
‘‘(B) EXCLUSION OF PROPERTY ACQUIRED BY SPOUSE.— 
Such term shall not include property which is not carryover 
basis property by reason of paragraph (2)(B). 
‘‘(c) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this section.’’. 
(b) MISCELLANEOUS AMENDMENTS RELATED TO CARRYOVER 
BASIS.— 
(1) CAPITAL
GAIN
TREATMENT
FOR
INHERITED
ART
WORK 
OR SIMILAR PROPERTY.— 
(A) IN GENERAL.—Subparagraph (C) of section 1221(3) 
(defining capital asset) is amended by inserting ‘‘(other 
than by reason of section 1023)’’ after ‘‘is determined’’. 
(B) COORDINATION WITH SECTION 170.—Paragraph (1) 
of section 170(e) (relating to certain contributions of ordi-
nary income and capital gain property) is amended by 
adding at the end the following: ‘‘For purposes of this 
paragraph, the determination of whether property is a 
capital asset shall be made without regard to the exception 
contained in section 1221(3)(C) for basis determined under 
section 1023.’’. 
(2) DEFINITION
OF EXECUTOR.—Section 7701(a) (relating 
to definitions) is amended by adding at the end the following: 
‘‘(47) EXECUTOR.—The term ‘executor’ means the executor 
or administrator of the decedent, or, if there is no executor 
or administrator appointed, qualified, and acting within the 
United States, then any person in actual or constructive posses-
sion of any property of the decedent.’’. 
(3) CLERICAL AMENDMENT.—The table of sections for part 
II of subchapter O of chapter 1 is amended by adding at 
the end the following new item: 
‘‘Sec. 1023. Carryover basis for certain property acquired from a decedent 
dying after December 31, 2008.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to estates of decedents dying after December 31, 2008. 
Subtitle B—Reductions of Estate and Gift 
Tax Rates Prior to Repeal 
SEC. 611. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES. 
(a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT.— 
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