‘‘(1) IN GENERAL.—In the case of any child to 
whom this subsection applies for any taxable year— 
‘‘(A) the 25-percent bracket threshold 
amount shall not be more than the taxable in-
come of such child for the taxable year reduced 
by the net unearned income of such child, and 
‘‘(B) the 35-percent bracket threshold 
amount shall not be more than the sum of— 
‘‘(i) the taxable income of such child 
for the taxable year reduced by the net un-
earned income of such child, plus 
‘‘(ii) the dollar amount in effect under 
subsection (b)(2)(C) for the taxable year. 
‘‘(2) CHILD TO WHOM SUBSECTION APPLIES.— 
This subsection shall apply to any child for any tax-
able year if— 
‘‘(A) such child— 
‘‘(i) has not attained age 18 before 
the close of the taxable year, or 
‘‘(ii) has attained age 18 before the 
close of the taxable year and is described 
in paragraph (3), 
‘‘(B) either parent of such child is alive at 
the close of the taxable year, and 
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‘‘(C) such child does not file a joint return 
for the taxable year. 
‘‘(3) CERTAIN CHILDREN WHOSE EARNED IN-
COME
DOES
NOT
EXCEED
ONE-HALF
OF
INDI-
VIDUAL’S
SUPPORT.—A child is described in this 
paragraph if— 
‘‘(A) such child— 
‘‘(i) has not attained age 19 before 
the close of the taxable year, or 
‘‘(ii) is a student (within the meaning 
of section 7705(f)(2)) who has not attained 
age 24 before the close of the taxable year, 
and 
‘‘(B) such child’s earned income (as de-
fined in section 911(d)(2)) for such taxable 
year does not exceed one-half of the amount of 
the individual’s support (within the meaning of 
section 7705(c)(1)(D) after the application of 
section 7705(f)(5) (without regard to subpara-
graph (A) thereof)) for such taxable year. 
‘‘(4) NET UNEARNED INCOME.—For purposes 
of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘net un-
earned income’ means the excess of— 
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‘‘(i) the portion of the adjusted gross 
income for the taxable year which is not 
attributable to earned income (as defined 
in section 911(d)(2)), over 
‘‘(ii) the sum of— 
‘‘(I) the amount in effect for the 
taxable year under section 63(c)(4)(A) 
(relating to limitation on standard de-
duction in the case of certain depend-
ents), plus 
‘‘(II) the greater of the amount 
described in subclause (I) or, if the 
child itemizes his deductions for the 
taxable year, the amount of the 
itemized deductions allowed by this 
chapter for the taxable year which are 
directly connected with the production 
of the portion of adjusted gross in-
come referred to in clause (i). 
‘‘(B) LIMITATION BASED ON TAXABLE IN-
COME.—The amount of the net unearned in-
come for any taxable year shall not exceed the 
individual’s taxable income for such taxable 
year. 
‘‘(e) PHASEOUT OF 10-PERCENT RATE.— 
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‘‘(1) IN GENERAL.—The amount of tax imposed 
by this section (determined without regard to this 
subsection) shall be increased by 5 percent of the ex-
cess (if any) of— 
‘‘(A) modified adjusted gross income, over 
‘‘(B) the applicable dollar amount. 
‘‘(2) LIMITATION.—The increase determined 
under paragraph (1) with respect to any taxpayer 
for any taxable year shall not exceed 15 percent of 
the lesser of— 
‘‘(A) the taxpayer’s taxable income for 
such taxable year, or 
‘‘(B) the 25-percent bracket threshold 
amount in effect with respect to the taxpayer 
for such taxable year. 
‘‘(3) APPLICABLE DOLLAR AMOUNT.—For pur-
poses of this subsection, the term ‘applicable dollar 
amount’ means— 
‘‘(A) in the case of a joint return or a sur-
viving spouse, $300,000, 
‘‘(B) in the case of any other individual, 
$250,000. 
‘‘(4) ESTATES
AND
TRUSTS.—Paragraph (1) 
shall not apply in the case of an estate or trust. 
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‘‘(f) DETERMINATION OF HIGHEST RATE.—For pur-
poses of any provision of law which refers to the highest 
rate of tax specified in this section (or any subsection of 
this section), such highest rate shall be treated as being 
35 percent.’’. 
(b) MODIFIED ADJUSTED GROSS INCOME.—Section 
2 is amended by striking subsection (b), by redesignating 
subsections (c), (d), and (e), as subsections (d), (e), and 
(f), respectively, and by inserting after subsection (a) the 
following new subsections: 
‘‘(b) MODIFIED ADJUSTED GROSS INCOME.—For 
purposes of section 1— 
‘‘(1) IN
GENERAL.—The term ‘modified ad-
justed gross income’ means adjusted gross income— 
‘‘(A) increased by— 
‘‘(i) any amount excluded from gross 
income under sections 911, 931, and 933, 
‘‘(ii) the excess (if any) of— 
‘‘(I) amounts of interest received 
or accrued by the taxpayer during the 
taxable year which are exempt from 
tax, over 
‘‘(II) amounts disallowed as a de-
duction 
by 
reason 
of 
section 
163(d)(1)(A) or 171(a)(2), 
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‘‘(iii) any exclusion from gross income 
with respect to the cost described in sec-
tion 6051(a)(14) (without regard to sub-
paragraphs (A) and (B) thereof), 
‘‘(iv) any deduction allowable under 
section 162(l) (relating to special rules for 
health insurance costs of self-employed in-
dividuals), 
‘‘(v) any annual addition (as defined 
in section 415(c)(2)) to a defined contribu-
tion plan which is not includible in, or 
which is deductible from, the gross income 
of the individual for the taxable year, 
‘‘(vi) any deduction allowable under 
section 223, and 
‘‘(vii) the excess (if any) of— 
‘‘(I) the social security benefits of 
the individual for the taxable year (as 
defined in section 86(d)), over 
‘‘(II) the amount included in the 
gross income of such individual for 
such taxable year under section 86, 
and 
‘‘(B) decreased by— 
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‘‘(i) any deduction allowed under sec-
tion 170 (and in the case of an estate or 
trust, any deduction allowed under section 
642(c)), and 
‘‘(ii) qualified domestic manufacturing 
income. 
‘‘(2) DETERMINATION OF ADJUSTED GROSS IN-
COME IN CASE OF ESTATES AND TRUSTS.—For pur-
poses of this subsection, the adjusted gross income 
of an estate or trust shall be computed in the same 
manner as in the case of an individual, except 
that— 
‘‘(A) the deductions for costs which are 
paid or incurred in connection with the admin-
istration of the estate or trust and which would 
not have been incurred if the property were not 
held in such trust or estate, and 
‘‘(B) the deductions allowable under sec-
tions 642(b), 651, and 661, 
shall be treated as allowable in arriving at adjusted 
gross income. Under regulations, appropriate adjust-
ments shall be made in the application of part I of 
subchapter J of this chapter to take into account the 
application of this paragraph. 
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‘‘(c) QUALIFIED DOMESTIC MANUFACTURING IN-
COME.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(b), the term ‘qualified domestic manufacturing in-
come’ for any taxable year means an amount equal 
to the excess (if any) of— 
‘‘(A) the taxpayer’s domestic manufac-
turing gross receipts for such taxable year, over 
‘‘(B) the sum of— 
‘‘(i) the cost of goods sold that are al-
locable to such receipts, and 
‘‘(ii) other expenses, losses, or deduc-
tions, which are properly allocable to such 
receipts. 
‘‘(2) ALLOCATION
METHOD.—The Secretary 
shall prescribe rules for the proper allocation of 
items described in paragraph (1) for purposes of de-
termining qualified domestic manufacturing income. 
Such rules shall provide for the proper allocation of 
items whether or not such items are directly allo-
cable to domestic manufacturing gross receipts. 
‘‘(3) 
SPECIAL
RULES
FOR
DETERMINING 
COSTS.— 
‘‘(A) IN GENERAL.—For purposes of deter-
mining costs under clause (i) of paragraph 
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(1)(B), any item or service brought into the 
United States shall be treated as acquired by 
purchase, and its cost shall be treated as not 
less than its value immediately after it entered 
the United States. A similar rule shall apply in 
determining the adjusted basis of leased or 
rented property where the lease or rental gives 
rise to domestic manufacturing gross receipts. 
‘‘(B) EXPORTS FOR FURTHER MANUFAC-
TURE.—In the case of any property described 
in subparagraph (A) that had been exported by 
the taxpayer for further manufacture, the in-
crease in cost or adjusted basis under subpara-
graph (A) shall not exceed the difference be-
tween the value of the property when exported 
and the value of the property when brought 
back into the United States after the further 
manufacture. 
‘‘(4) DOMESTIC
MANUFACTURING
GROSS
RE-
CEIPTS.—For purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘domestic 
manufacturing gross receipts’ means the gross 
receipts of the taxpayer which are derived 
from— 
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‘‘(i) any lease, rental, license, sale, ex-
change, or other disposition of tangible 
personal property which was manufac-
tured, produced, grown, or extracted by 
the taxpayer in whole or in significant part 
within the United States, or 
‘‘(ii) in the case of a taxpayer engaged 
in the active conduct of a construction 
trade or business, construction of real 
property performed in the United States 
by the taxpayer in the ordinary course of 
such trade or business if such real prop-
erty is placed in service after December 
31, 2014. 
‘‘(B) EXCEPTIONS.—Such term shall not 
include gross receipts of the taxpayer which are 
derived from— 
‘‘(i) the sale of food and beverages 
prepared by the taxpayer at a retail estab-
lishment, 
‘‘(ii) the transmission or distribution 
of electricity, natural gas, or potable water, 
and 
‘‘(iii) the lease, rental, license, sale, 
exchange, or other disposition of land. 
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‘‘(C) SPECIAL
RULE
FOR
CERTAIN
GOV-
ERNMENT CONTRACTS.—Gross receipts derived 
from the manufacture or production of any 
property described in subparagraph (A)(i) shall 
be treated as meeting the requirements of sub-
paragraph (A)(i) if— 
‘‘(i) such property is manufactured or 
produced by the taxpayer pursuant to a 
contract with the Federal Government, and 
‘‘(ii) the Federal Acquisition Regula-
tion requires that title or risk of loss with 
respect to such property be transferred to 
the Federal Government before the manu-
facture or production of such property is 
complete. 
‘‘(D) TREATMENT OF ACTIVITIES IN PUER-
TO RICO.—In the case of any taxpayer with 
gross receipts for any taxable year from sources 
within the Commonwealth of Puerto Rico, if all 
of such receipts are taxable under section 1 for 
such taxable year, then this paragraph shall be 
applied by treating each reference in subpara-
graph (A) to the United States as including the 
Commonwealth of Puerto Rico. 
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‘‘(E) TANGIBLE
PERSONAL
PROPERTY.— 
The term ‘tangible personal property’ shall not 
include computer software or any property de-
scribed in paragraph (3) or (4) of section 
168(f). 
‘‘(F) RELATED PERSONS.— 
‘‘(i) IN GENERAL.—The term ‘domes-
tic manufacturing gross receipts’ shall not 
include any gross receipts of the taxpayer 
derived from property leased, licensed, or 
rented by the taxpayer for use by any re-
lated person. 
‘‘(ii) RELATED
PERSON.—For pur-
poses of clause (i), a person shall be treat-
ed as related to another person if such per-
sons are treated as a single employer 
under subsection (a) or (b) of section 52 or 
subsection (m) or (o) of section 414, ex-
cept that determinations under subsections 
(a) and (b) of section 52 shall be made 
without regard to section 1563(b). 
‘‘(5) CERTAIN INCOME NOT QUALIFIED.— 
‘‘(A) NET EARNINGS FROM SELF EMPLOY-
MENT.—Domestic manufacturing gross receipts 
shall not include any amount which is properly 
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allocable to the taxpayer’s net earnings from 
self employment (determined after any reduc-
tion provided under section 1402(m)). 
‘‘(B) CERTAIN ACCOUNTING METHOD AD-
JUSTMENTS.—Domestic manufacturing gross 
receipts shall not include any amount attrib-
utable to— 
‘‘(i) a qualified change in method of 
accounting 
(as 
defined 
in 
section 
3301(d)(2) of the Tax Reform Act of 
2014), or 
‘‘(ii) any other change in method of 
accounting which is required by the 
amendments made by such Act. 
‘‘(6) APPLICATION
OF
SECTION
TO
PASS- 
THROUGH ENTITIES.— 
‘‘(A) PARTNERSHIPS
AND
S
CORPORA-
TIONS.—Except as provided in subparagraph 
(B), in the case of a partnership or S corpora-
tion, each partner or shareholder shall take into 
account such person’s allocable share of each 
item described in subparagraph (A) or (B) of 
paragraph (1) (determined without regard to 
whether the items described in such subpara-
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graph (A) exceed the items described in such 
subparagraph (B)). 
‘‘(B) PUBLICLY TRADED PARTNERSHIPS.— 
In the case of a publicly traded partnership de-
scribed in section 7704(c), each partner shall 
not take into account any allocable share of any 
item referred to in subparagraph (A). 
‘‘(C) TRUSTS AND ESTATES.—In the case 
of a trust or estate, the items referred to in 
subparagraph (A) (as determined therein) shall 
be apportioned between the beneficiaries and 
the fiduciary (and among the beneficiaries) 
under regulations prescribed by the Secretary. 
‘‘(7) REGULATIONS.—The Secretary shall pre-
scribe such regulations or other guidance as may be 
necessary or appropriate to carry out the purposes 
of this section, including regulations or other guid-
ance— 
‘‘(A) which prevent more than 1 taxpayer 
from taking into account the same qualified do-
mestic manufacturing income, and 
‘‘(B) which require or restrict the alloca-
tion of items under paragraph (6) and require 
such reporting for purposes of carrying out 
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such paragraph as the Secretary determines ap-
propriate. 
‘‘(8) PHASE-IN OF EXCLUSION.—In the case of 
any taxable year beginning before January 1, 2017, 
the term ‘qualified domestic manufacturing income’ 
shall be an amount equal to the product of the quali-
fied domestic manufacturing income determined 
without regard to this paragraph, multiplied by— 
‘‘(A) in the case of any taxable year begin-
ning in 2015, 33 percent, and 
‘‘(B) in the case of any taxable year begin-
ning in 2016, 67 percent.’’. 
(c) APPLICATION OF SECTION 15.— 
(1) IN GENERAL.—Subsection (a) of section 15 
is amended by striking ‘‘this chapter’’ and inserting 
‘‘section 11’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 15 is amended by striking sub-
sections (d) and (f) and by redesignating sub-
section (e) as subsection (d). 
(B) Section 15(d), as redesignated by sub-
paragraph (A), is amended by striking ‘‘section 
1 or 11(b)’’ and inserting ‘‘section 11(b)’’. 
(C) Subchapter A of chapter 1 is amend-
ed— 
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(i) by redesignating section 12 as sec-
tion 13, 
(ii) by redesignating section 15 (as 
amended by this subsection) as section 12 
and moving such section from part III of 
such subchapter to after section 11 in part 
II of such subchapter, 
(iii) by striking part III, and 
(iv) by amending the table of sections 
for part II of such subchapter by redesig-
nating the item relating to section 12 as 
an item relating to section 13 and by in-
serting after the item relating to section 11 
the following new item: 
‘‘Sec. 12. Effect of changes.’’. 
(D) Section 6013(c) is amended by strik-
ing ‘‘sections 15, 443, and 7851(a)(1)(A)’’ and 
inserting ‘‘sections 443 and 7851(a)(1)(A)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1002. DEDUCTION FOR ADJUSTED NET CAPITAL GAIN. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1, as amended by section 3105, is amended by insert-
ing after section 168 the following new section: 
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‘‘SEC. 169. ADJUSTED NET CAPITAL GAIN. 
‘‘(a) IN GENERAL.—If for any taxable year a tax-
payer other than a corporation has an adjusted net capital 
gain, 40 percent of the amount of the adjusted net capital 
gain shall be allowed as a deduction from gross income. 
‘‘(b) ADJUSTED NET CAPITAL GAIN.—For purposes 
of this section, the term ‘adjusted net capital gain’ means 
the sum of— 
‘‘(1) net capital gain reduced (but not below 
zero) by the net collectibles gain, plus 
‘‘(2) qualified dividend income. 
‘‘(c) NET CAPITAL GAIN REDUCED BY AMOUNTS 
TAKEN INTO ACCOUNT AS INVESTMENT INCOME.—For 
purposes of this section, the net capital gain for any tax-
able 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). 
‘‘(d) NET COLLECTIBLES GAIN.—For purposes of 
this section— 
‘‘(1) IN GENERAL.—The term ‘net collectibles 
gain’ means the excess (if any) of— 
‘‘(A) collectibles gain, over 
‘‘(B) collectibles loss. 
‘‘(2) COLLECTIBLES
GAIN
AND
LOSS.—The 
terms ‘collectibles gain’ and ‘collectibles loss’ mean 
gain or loss (respectively) from the sale or exchange 
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of a collectible (as defined in section 408(m) without 
regard to paragraph (3) thereof) which is a capital 
asset held for more than 1 year but only to the ex-
tent such gain is taken into account in computing 
gross income and such loss is taken into account in 
computing taxable income. 
‘‘(3) PARTNERSHIPS, ETC.—For purposes of 
paragraph (2), any gain from the sale of an interest 
in a partnership, S corporation, or trust which is at-
tributable to unrealized appreciation in the value of 
collectibles shall be treated as gain from the sale or 
exchange of a collectible. Rules similar to the rules 
of section 751 shall apply for purposes of the pre-
ceding sentence. 
‘‘(e) QUALIFIED DIVIDEND INCOME.—For purposes 
of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified divi-
dend income’ means dividends received during the 
taxable year from— 
‘‘(A) domestic corporations, and 
‘‘(B) qualified foreign corporations. 
‘‘(2) CERTAIN
DIVIDENDS
EXCLUDED.—Such 
term shall not include— 
‘‘(A) any dividend from a corporation 
which for the taxable year of the corporation in 
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which the distribution is made, or the preceding 
taxable year, is a corporation exempt from tax 
under section 501 or 521, 
‘‘(B) any amount allowed as a deduction 
under section 591 (relating to deduction for 
dividends paid by mutual savings banks, etc.), 
and 
‘‘(C) any dividend described in section 
404(k). 
‘‘(3) COORDINATION WITH SECTION 246(c).— 
Such term shall not include any dividend on any 
share of stock— 
‘‘(A) with respect to which the holding pe-
riod requirements of section 246(c) are not met 
(determined without regard to paragraph (5) of 
section 246(c) and by substituting in section 
246(c) ‘60 days’ for ‘45 days’ each place it ap-
pears and by substituting ‘121-day period’ for 
‘91-day period’), or 
‘‘(B) to the extent that the taxpayer is 
under an obligation (whether pursuant to a 
short sale or otherwise) to make related pay-
ments with respect to positions in substantially 
similar or related property. 
‘‘(4) QUALIFIED FOREIGN CORPORATIONS.— 
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‘‘(A) IN GENERAL.—Except as otherwise 
provided in this subparagraph, the term ‘quali-
fied foreign corporation’ means any foreign cor-
poration if— 
‘‘(i) such corporation is incorporated 
in a possession of the United States, or 
‘‘(ii) such corporation is eligible as a 
qualified resident for all of the benefits 
provided under a comprehensive income 
tax treaty with the United States which 
the Secretary determines is satisfactory for 
purposes of this paragraph and which in-
cludes an exchange of information pro-
gram. 
‘‘(B) DIVIDENDS
ON
STOCK
READILY 
TRADABLE
ON
UNITED
STATES
SECURITIES 
MARKET.—A foreign corporation not otherwise 
treated as a qualified foreign corporation under 
subparagraph (A) shall be so treated with re-
spect to any dividend paid by such corporation 
if the stock with respect to which such dividend 
is paid is readily tradable on an established se-
curities market in the United States. 
‘‘(C) EXCLUSION OF DIVIDENDS OF CER-
TAIN
FOREIGN
CORPORATIONS.—The 
term 
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‘qualified foreign corporation’ shall not include 
any foreign corporation which for the taxable 
year of the corporation in which the dividend 
was paid, or the preceding taxable year, is a 
passive foreign investment company (as defined 
in section 1297). 
‘‘(5) TREATMENT OF DIVIDENDS FROM REGU-
LATED INVESTMENT COMPANIES AND REAL ESTATE 
INVESTMENT TRUSTS.—A dividend received from a 
regulated investment company or a real estate in-
vestment trust shall be subject to the limitations 
prescribed in sections 854 and 857.’’. 
(b) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL
ITEMIZES
DEDUCTIONS.—Section 
62(a) 
is 
amended by inserting after paragraph (7) the following 
new paragraph: 
‘‘(8) ADJUSTED NET CAPITAL GAIN.—The de-
duction allowed by section 169.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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SEC. 1003. CONFORMING AMENDMENTS RELATED TO SIM-
PLIFICATION OF INDIVIDUAL INCOME TAX 
RATES. 
(a) AMENDMENTS RELATED TO MODIFICATION OF 
INFLATION ADJUSTMENT.— 
(1) Section 25B(b)(3)(B) is amended by strik-
ing ‘‘section 1(f)(3) for the calendar year in which 
the taxable year begins, determined by substituting 
‘calendar year 2005’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof’’ and inserting ‘‘section 
1(c)(2)(A) for the calendar year in which the taxable 
year begins, determined by substituting ‘calendar 
year 2005’ for ‘calendar year 2012’ in clause (ii) 
thereof’’. 
(2) Subclause (II) of section 36B(b)(3)(A)(ii) is 
amended by striking ‘‘consumer price index’’ and in-
serting ‘‘C-CPI-U (as defined in section 1(c))’’. 
(3) Section 41(e)(5)(C) is amended to read as 
follows: 
‘‘(C) COST-OF-LIVING
ADJUSTMENT
DE-
FINED.— 
‘‘(i) IN GENERAL.—The cost-of-living 
adjustment for any calendar year is the 
cost-of-living adjustment for such calendar 
year determined under section 1(c)(2)(A), 
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by substituting ‘calendar year 1987’ for 
‘calendar year 2012’ in clause (ii) thereof. 
‘‘(ii) SPECIAL RULE WHERE BASE PE-
RIOD ENDS IN A CALENDAR YEAR OTHER 
THAN 1983 OR 1984.—If the base period of 
any taxpayer does not end in 1983 or 
1984, clause (i) shall be applied by sub-
stituting the calendar year in which such 
base period ends for 1987.’’. 
(4) Section 125(i)(2) is amended— 
(A) by striking ‘‘section 1(f)(3) for the cal-
endar year in which the taxable year begins by 
substituting ‘calendar year 2012’ for ‘calendar 
year 1992’ in subparagraph (B) thereof’’ in 
subparagraph 
(B) 
and 
inserting 
‘‘section 
1(c)(2)(A) for the calendar year in which the 
taxable year begins’’, and 
(B) by striking ‘‘$50’’ both places it ap-
pears in the last sentence and inserting 
‘‘$100’’. 
(5) Section 137(f) is amended— 
(A) by striking ‘‘section 1(f)(3) for the cal-
endar year in which the taxable year begins, de-
termined by substituting ‘calendar year 2001’ 
for ‘calendar year 1992’ in subparagraph (B) 
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thereof’’ in paragraph (2) and inserting ‘‘sec-
tion 1(c)(2)(A) for the calendar year in which 
the taxable year begins, determined by sub-
stituting ‘calendar year 2001’ for ‘calendar year 
2012’ in clause (ii) thereof’’, and 
(B) in the last sentence thereof— 
(i) by striking ‘‘$10’’ the first place it 
appears and inserting ‘‘$100’’, and 
(ii) by striking ‘‘nearest multiple of 
$10’’ and inserting ‘‘next lowest multiple 
of $100’’. 
(6) Section 162(o)(3) is amended by inserting 
‘‘as in effect before enactment of the Tax Reform 
Act of 2014’’ after ‘‘section 1(f)(5)’’. 
(7) Section 220(g)(2) is amended by striking 
‘‘section 1(f)(3) for the calendar year in which the 
taxable year begins by substituting ‘calendar year 
1997’ for ‘calendar year 1992’ in subparagraph (B) 
thereof’’ and inserting ‘‘section 1(c)(2)(A) for the 
calendar year in which the taxable year begins, de-
termined by substituting ‘calendar year 1997’ for 
‘calendar year 2012’ in clause (ii) thereof’’. 
(8) Section 223(g)(1) is amended by striking all 
that follows subparagraph (A) and inserting the fol-
lowing: 
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‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for the calendar 
year in which the taxable year begins, deter-
mined— 
‘‘(i) by substituting for ‘calendar year 
2012’ in clause (ii) thereof— 
‘‘(I) except as provided in clause 
(ii), ‘calendar year 1997’, and 
‘‘(II) in the case of each dollar 
amount in subsection (c)(2)(A), ‘cal-
endar year 2003’, and 
‘‘(ii) by substituting ‘March 31’ for 
‘August 31’ in paragraphs (5)(B) and 
(6)(B) of section 1(c). 
The Secretary shall publish the dollar amounts 
as adjusted under this subsection for taxable 
years beginning in any calendar year no later 
than June 1 of the preceding calendar year.’’. 
(9) Section 430(c)(7)(D)(vii)(II) is amended by 
striking ‘‘section 1(f)(3) for the calendar year, deter-
mined by substituting ‘calendar year 2009’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof’’ and 
inserting ‘‘section 1(c)(2)(A) for the calendar year, 
determined by substituting ‘calendar year 2009’ for 
‘calendar year 2012’ in clause (ii) thereof’’. 
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(10) Section 512(d)(2)(B) is amended by strik-
ing ‘‘section 1(f)(3) for the calendar year in which 
the taxable year begins, by substituting ‘calendar 
year 1994’ for ‘calendar year 1992’ in subparagraph 
(B) thereof’’and inserting ‘‘section 1(c)(2)(A) for the 
calendar year in which the taxable year begins, de-
termined by substituting ‘calendar year 1994’ for 
‘calendar year 2012’ in clause (ii) thereof’’. 
(11) Section 513(h)(2)(C)(ii) is amended by 
striking ‘‘section 1(f)(3) for the calendar year in 
which the taxable year begins by substituting ‘cal-
endar year 1987’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof’’ and inserting ‘‘section 
1(c)(2)(A) for the calendar year in which the taxable 
year begins, determined by substituting ‘calendar 
year 1987’ for ‘calendar year 2012’ in clause (ii) 
thereof’’. 
(12) Section 877A(a)(3)(B)(i)(II) is amended 
by striking ‘‘section 1(f)(3) for the calendar year in 
which the taxable year begins, by substituting ‘cal-
endar year 2007’ for ‘calendar year 1992’ in sub-
paragraph (B) thereof’’ and inserting ‘‘section 
1(c)(2)(A) for the calendar year in which the taxable 
year begins, determined by substituting ‘calendar 
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year 2007’ for ‘calendar year 2012’ in clause (ii) 
thereof’’. 
(13) Section 911(b)(2)(D)(ii)(II) is amended by 
striking ‘‘section 1(f)(3) for the calendar year in 
which the taxable year begins, determined by sub-
stituting ‘2004’ for ‘1992’ in subparagraph (B) 
thereof’’ and inserting ‘‘section 1(c)(2)(A) for the 
calendar year in which the taxable year begins, de-
termined by substituting ‘calendar year 2004’ for 
‘calendar year 2012’ in clause (ii) thereof’’. 
(14) Section 1274A(d)(2) is amended to read 
as follows: 
‘‘(2) INFLATION ADJUSTMENT.— 
‘‘(A) IN
GENERAL.—In the case of any 
debt instrument arising out of a sale or ex-
change during any calendar year after 2014, 
each adjusted dollar amount shall be increased 
by an amount equal to— 
‘‘(i) such adjusted dollar amount, 
multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(c)(2)(A) for such 
calendar year, determined by substituting 
‘calendar year 2013’ for ‘calendar year 
2012’ in clause (ii) thereof. 
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‘‘(B) ADJUSTED DOLLAR AMOUNTS.—For 
purposes of this paragraph, the term ‘adjusted 
dollar amount’ means the dollar amounts in 
subsections (b) and (c), in each case as in effect 
for calendar year 2014. 
‘‘(C) ROUNDING.—Any increase under sub-
paragraph (A) shall be rounded to the nearest 
multiple of $100.’’. 
(15) Section 2010(c)(3)(B)(ii) is amended by 
striking ‘‘section 1(f)(3) for such calendar year by 
substituting ‘calendar year 2010’ for ‘calendar year 
1992’ in subparagraph (B) thereof’’ and inserting 
‘‘section 1(c)(2)(A) for such calendar year, deter-
mined by substituting ‘calendar year 2010’ for ‘cal-
endar year 2012’ in clause (ii) thereof’’. 
(16) Section 2032A(a)(3)(B) is amended by 
striking ‘‘section 1(f)(3) for such calendar year by 
substituting ‘calendar year 1997’ for ‘calendar year 
1992’ in subparagraph (B) thereof’’ and inserting 
‘‘section 1(c)(2)(A) for such calendar year, deter-
mined by substituting ‘calendar year 1997’ for ‘cal-
endar year 2012’ in clause (ii) thereof’’. 
(17) Section 2503(b)(2)(B) is amended by 
striking ‘‘section 1(f)(3) for such calendar year by 
substituting ‘calendar year 1997’ for ‘calendar year 
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1992’ in subparagraph (B) thereof’’ and inserting 
‘‘section 1(c)(2)(A) for the calendar year, deter-
mined by substituting ‘calendar year 1997’ for ‘cal-
endar year 2012’ in clause (ii) thereof’’. 
(18) Section 4161(b)(2)(C)(i)(II) is amended by 
striking ‘‘section 1(f)(3) for such calendar year, de-
termined by substituting ‘2004’ for ‘1992’ in sub-
paragraph (B) thereof’’ and inserting ‘‘section 
1(c)(2)(A) for such calendar year, determined by 
substituting ‘calendar year 2004’ for ‘calendar year 
2012’ in clause (ii) thereof’’. 
(19) Section 4261(e)(4)(A)(ii) is amended by 
striking ‘‘section 1(f)(3) for such calendar year by 
substituting the year before the last nonindexed year 
for ‘calendar year 1992’ in subparagraph (B) there-
of’’ and inserting ‘‘section 1(c)(2)(A) for such cal-
endar year, determined by substituting the year be-
fore the last nonindexed year for ‘calendar year 
2012’ in clause (ii) thereof’’. 
(20) Section 4980I(b)(3)(C)(v)(II) is amended 
(A) by striking ‘‘section 1(f)(3)’’ and in-
serting ‘‘section 1(c)(2)(A)’’, 
(B) by striking ‘‘subparagraph (B)’’ and 
inserting ‘‘clause (ii)’’, and 
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(C) by striking ‘‘1992’’ and inserting 
‘‘2012’’. 
(21) Section 5000A(c)(3)(D)(ii) is amended— 
(A) by striking ‘‘section 1(f)(3)’’ and in-
serting ‘‘section 1(c)(2)(A)’’, 
(B) by striking ‘‘subparagraph (B)’’ and 
inserting ‘‘clause (ii)’’, and 
(C) by striking ‘‘1992’’ and inserting 
‘‘2012’’. 
(22) Section 6039F(d) is amended by striking 
‘‘section 1(f)(3), except that subparagraph (B) 
thereof’’ and inserting ‘‘section 1(c)(2)(A), except 
that clause (ii) thereof’’. 
(23) Section 6323(i)(4)(B) is amended by strik-
ing ‘‘section 1(f)(3) for the calendar year, deter-
mined by substituting ‘calendar year 1996’ for ‘cal-
endar year 1992’ in subparagraph (B) thereof’’ and 
inserting ‘‘section 1(c)(2)(A) for the calendar year, 
determined by substituting ‘calendar year 1996’ for 
‘calendar year 2012’ in clause (ii) thereof’’. 
(24) Section 6334(g)(1)(B) is amended by 
striking ‘‘section 1(f)(3) for such calendar year, by 
substituting ‘calendar year 1998’ for ‘calendar year 
1992’ in subparagraph (B) thereof’’ and inserting 
‘‘section 1(c)(2)(A) for such calendar year, deter-
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mined by substituting ‘calendar year 1999’ for ‘cal-
endar year 2012’ in clause (ii) thereof’’. 
(25) Section 6721(f)(1) is amended— 
(A) by striking ‘‘section 1(f)(3)’’ and in-
serting ‘‘section 1(c)(2)(A)’’, 
(B) by striking ‘‘subparagraph (B)’’ and 
inserting ‘‘clause (ii)’’, and 
(C) by striking ‘‘1992’’ and inserting 
‘‘2012’’. 
(26) Section 6722(f)(1) is amended— 
(A) by striking ‘‘section 1(f)(3)’’ and in-
serting ‘‘section 1(c)(2)(A)’’, 
(B) by striking ‘‘subparagraph (B)’’ and 
inserting ‘‘clause (ii)’’, and 
(C) by striking ‘‘1992’’ and inserting 
‘‘2012’’. 
(27) Section 7430(c)(1) is amended by striking 
‘‘section 1(f)(3) for such calendar year, by sub-
stituting ‘calendar year 1995’ for ‘calendar year 
1992’ in subparagraph (B) thereof’’ in the flush text 
at the end and inserting ‘‘section 1(c)(2)(A) for such 
calendar year, determined by substituting ‘calendar 
year 1995’ for ‘calendar year 2012’ in clause (ii) 
thereof’’. 
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(28) Section 7872(g)(5) is amended to read as 
follows: 
‘‘(5) INFLATION ADJUSTMENT.— 
‘‘(A) IN
GENERAL.—In the case of any 
loan made during any calendar year after 2014 
to which paragraph (1) applies, the adjusted 
dollar amount shall be increased by an amount 
equal to— 
‘‘(i) such adjusted dollar amount, 
multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(c)(2)(A) for such 
calendar year, determined by substituting 
‘calendar year 2013’ for ‘calendar year 
2012’ in clause (ii) thereof. 
‘‘(B) ADJUSTED
DOLLAR
AMOUNT.—For 
purposes of this paragraph, the term ‘adjusted 
dollar amount’ means the dollar amount in 
paragraph (2) as in effect for calendar year 
2014. 
‘‘(C) ROUNDING.—Any increase under sub-
paragraph (A) shall be rounded to the nearest 
multiple of $100.’’. 
(b) AMENDMENTS RELATED
TO DEDUCTION
FOR 
ADJUSTED NET CAPITAL GAIN.— 
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(1) Section 163(d)(4)(B) is amended by strik-
ing ‘‘section 1(h)(11)(B)’’ and inserting ‘‘section 
169(e)’’. 
(2) Section 172(d)(2)(B) is amended by insert-
ing ‘‘the deduction allowable under section 169 and’’ 
before ‘‘the exclusion’’. 
(3) Section 301(f)(4) is amended by striking 
‘‘section 1(h)(11)’’ and inserting ‘‘section 169(e)’’. 
(4) Section 306(a)(1)(D) is amended by strik-
ing ‘‘section 1(h)(11)’’ and inserting ‘‘section 
169(e)’’. 
(5) The last sentence of section 453A(c)(3) is 
amended by striking ‘‘capital gain’’ and all that fol-
lows and inserting ‘‘capital gain, the deduction 
under section 169 shall be taken into account.’’. 
(6) Sections 531 and 541 are each amended by 
striking ‘‘20 percent’’ and inserting ‘‘21 percent’’. 
(7) Section 584(c) is amended by striking ‘‘and 
to which section 1(h)(11) applies’’ in the last sen-
tence and inserting ‘‘which is qualified dividend in-
come (as defined in section 169(e)) in the hands of 
such common trust fund’’. 
(8) Section 641(c)(2)(C) (prior to redesignation 
by title II) is amended by adding at the end the fol-
lowing new clause: 
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‘‘(v) The deduction allowed by section 
169.’’. 
(9) The first sentence of section 642(c)(4) is 
amended by striking ‘‘consists of’’ and all that fol-
lows and inserting ‘‘consists of long-term capital 
gain or gain described in section 1202(a), proper ad-
justments shall be made for any deduction allowable 
to the trust or estate under section 169 and for any 
exclusion allowable under section 1202.’’. 
(10) The last sentence of section 643(a)(3) is 
amended to read as follows: ‘‘The deduction under 
section 169 and the exclusion under section 1202 
shall not be taken into account.’’. 
(11) Section 691(c)(4) is amended by striking 
‘‘1(h)’’ and inserting ‘‘169’’. 
(12) Section 702(a)(5) is amended by striking 
‘‘section 1(h)(11)’’ and inserting ‘‘section 169’’. 
(13) Section 854 is amended— 
(A) by striking ‘‘section 1(h)(11) (relating 
to maximum rate of tax on dividends)’’ in sub-
section (a) and inserting ‘‘section 169 (relating 
to adjusted net capital gain)’’, 
(B) by striking ‘‘MAXIMUM RATE UNDER 
SECTION 1(h)’’ in the heading of subsection 
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(b)(1)(B) and inserting ‘‘DETERMINATION OF 
ADJUSTED NET CAPITAL GAIN’’, and 
(C) by striking ‘‘section 1(h)(11)(B)’’ in 
subsection 
(b)(4) 
and 
inserting 
‘‘section 
169(e)’’. 
(14) Section 857(c)(2) is amended— 
(A) by striking ‘‘section 1(h)(11)(B)’’ in 
subparagraph 
(D) 
and 
inserting 
‘‘section 
169(e)’’, and 
(B) by striking ‘‘SECTION 1(h)(11)’’ in the 
heading and inserting ‘‘SECTION 169(e)’’. 
(15) Section 904(b) is amended— 
(A) by amending paragraph (2) to read as 
follows: 
‘‘(2) CAPITAL GAINS.—For purposes of this sec-
tion, taxable income from sources outside the United 
States shall include gain from the sale or exchange 
of capital assets (including gain so treated under 
section 1231) only to the extent of the lesser of— 
‘‘(A) capital gain net income from sources 
without the United States, or 
‘‘(B) capital gain net income.’’, and 
(B) by striking paragraph (3). 
(16) Section 1260(a) is amended by striking 
‘‘long-term capital gain’’ the first place such term 
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appears and all that follows and inserting ‘‘long- 
term capital gain, such gain shall be treated as ordi-
nary income to the extent such gain exceeds the net 
underlying long-term capital gain.’’. 
(17) Section 1411(c)(1)(B) is amended by in-
serting ‘‘(other than section 169)’’ after ‘‘this sub-
title’’. 
(18) Section 4985(a)(1) is amended by striking 
‘‘the rate of tax specified in section 1(h)(1)(C)’’ and 
inserting ‘‘21 percent’’. 
(19) Section 7518(g)(6)(A) is amended by 
striking all that follows clause (i) and inserting the 
following: 
‘‘(ii) by increasing the tax imposed by 
chapter 1 by the product of the amount of 
such withdrawal, multiplied by— 
‘‘(I) in the case of a taxpayer 
other than a corporation, 60 percent 
of the highest rate of tax specified in 
section 1, and 
‘‘(II) in the case of a corporation, 
the highest rate of tax specified in 
section 11.’’. 
(20) Section 53511(f) of title 46, United States 
Code, is amended by— 
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(A) by amending paragraph (1)(B) to read 
as follows: 
‘‘(B) increasing the tax imposed by chapter 
1 of such Code by the product of the amount 
of such withdrawal, multiplied by— 
‘‘(i) in the case of a taxpayer other 
than a corporation, the highest rate of tax 
specified in section 1 (60 percent of such 
highest rate in the case of so much of such 
withdrawal as is made from the capital 
gain account), and 
‘‘(ii) in the case of a corporation, the 
highest rate of tax specified in section 
11.’’, and 
(B) by striking paragraph (2) and by re-
designating paragraphs (3) and (4) as para-
graphs (2) and (3), respectively. 
(21) The table of sections for part VI of sub-
chapter B of chapter 1 is amended by inserting after 
the item relating to section 168 the following new 
item: 
‘‘Sec. 169. Adjusted net capital gain.’’. 
(c) OTHER CONFORMING AMENDMENTS.— 
(1) Section 25B(b)(2) is amended by striking 
‘‘In the case of—’’ and all that follows through ‘‘any 
taxpayer not described in paragraph (1) or subpara-
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tion 1(c)’’ and inserting ‘‘the highest rate of tax 
specified in section 1’’. 
(14) Section 6103(e)(1)(A)(iii) is amended by 
striking ‘‘section 1(g)’’ and inserting ‘‘section 1(d)’’. 
(d) WITHHOLDING FROM SUPPLEMENTAL WAGE 
PAYMENTS.— 
(1) IN GENERAL.—If an employer elects under 
Treasury Regulation section 31.3402(g)–1 to deter-
mine the amount to be deducted and withheld from 
any supplemental wage payment by using a flat per-
centage rate, the rate to be used in determining such 
amount shall not be less than 35 percent. 
(2) REPEAL OF SUPERCEDED PROVISION.—The 
American Jobs Creation Act of 2004 is amended by 
striking section 904. 
(e) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2014. 
(2) WITHHOLDING FROM SUPPLEMENTAL WAGE 
PAYMENTS.—The provisions of, and amendments 
made by, subsection (d) shall apply to payments 
made after December 31, 2014. 
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Subtitle B—Simplification of Tax 
Benefits for Families 
SEC. 1101. STANDARD DEDUCTION. 
(a) INCREASE
IN STANDARD DEDUCTION.—Sub-
section (c) of section 63 is amended to read as follows: 
‘‘(c) STANDARD DEDUCTION.—For purposes of this 
subtitle— 
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘standard deduc-
tion’ means— 
‘‘(A) $22,000, in the case of a joint return, 
and 
‘‘(B) one-half of the amount in effect 
under subparagraph (A) for the taxable year, in 
any other case. 
‘‘(2) PHASEOUT OF STANDARD DEDUCTION.— 
The amount of the standard deduction determined 
under this subsection (without regard to this para-
graph and after the application of paragraph (4)) 
shall be reduced (but not below zero) by an amount 
equal to 20 percent of the excess (if any) of— 
‘‘(A) the taxpayer’s modified adjusted 
gross income (as defined in section 2(b)) for the 
taxable year, over 
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‘‘(B)(i) the joint return standard deduction 
phaseout threshold for the taxable year, in the 
case of a taxpayer described in paragraph 
(1)(A), and 
‘‘(ii) the non-joint return standard deduc-
tion phaseout threshold for the taxable year, in 
any other case. 
‘‘(3) 
STANDARD
DEDUCTION
PHASEOUT 
THRESHOLDS.— 
‘‘(A) JOINT
RETURN
STANDARD
DEDUC-
TION PHASEOUT THRESHOLD.—The term ‘joint 
return standard deduction phaseout threshold’ 
means, with respect to any taxable year— 
‘‘(i) the dollar amount in effect under 
section 1(e)(3)(A) for such taxable year, 
plus 
‘‘(ii) the product of— 
‘‘(I) the dollar amount in effect 
under section 1(b)(1)(A) for such tax-
able year, multiplied by 
‘‘(II) 3. 
‘‘(B) NON-JOINT RETURN STANDARD DE-
DUCTION
PHASEOUT
THRESHOLD.—The term 
‘non-joint return standard deduction phaseout 
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threshold’ means, with respect to any taxable 
year— 
‘‘(i) the dollar amount in effect under 
section 1(e)(3)(B) for such taxable year, 
plus 
‘‘(ii) the product of— 
‘‘(I) the dollar amount in effect 
under section 1(b)(1)(B) for such tax-
able year, multiplied by 
‘‘(II) 3. 
‘‘(4) LIMITATION ON STANDARD DEDUCTION IN 
THE CASE OF CERTAIN DEPENDENTS.—In the case 
of an individual who is a dependent of another tax-
payer for a taxable year beginning in the calendar 
year in which the individual’s taxable year begins, 
the standard deduction applicable to such individual 
for such individual’s taxable year shall not exceed 
the greater of— 
‘‘(A) $500, or 
‘‘(B) the sum of $250 and such individ-
ual’s earned income (as defined in section 
24(d)(2)). 
‘‘(5) CERTAIN INDIVIDUALS, ETC., NOT ELIGI-
BLE FOR STANDARD DEDUCTION.—In the case of— 
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‘‘(A) a married individual filing a separate 
return where such individual’s spouse elects to 
itemize deductions, 
‘‘(B) a nonresident alien individual, 
‘‘(C) an individual making a return under 
section 443(a)(1) for a period of less than 12 
months on account of a change in his annual 
accounting period, or 
‘‘(D) an estate or trust, common trust 
fund, or partnership, 
the standard deduction shall be zero. 
‘‘(6) INFLATION ADJUSTMENTS.—In the case of 
any taxable year beginning after 2014, each of the 
dollar amounts in paragraphs (1)(A) and (4) shall 
be increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined— 
‘‘(i) in the case of the dollar amount 
in 
paragraph 
(1)(A), 
under 
section 
1(c)(2)(A) for the calendar year in which 
the taxable year begins, 
‘‘(ii) in the case of the dollar amount 
in 
paragraph 
(4)(A), 
under 
section 
1(c)(2)(A) for the calendar year in which 
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the taxable year begins determined by sub-
stituting ‘calendar year 1987’ for ‘calendar 
year 2012’ in clause (ii) thereof, and 
‘‘(iii) in the case of the dollar amount 
in 
paragraph 
(4)(B), 
under 
section 
1(c)(2)(A) for the calendar year in which 
the taxable year begins determined by sub-
stituting ‘calendar year 1997’ for ‘calendar 
year 2012’ in clause (ii) thereof. 
If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall 
be rounded to the next lowest multiple of $100.’’. 
(b) ADDITIONAL DEDUCTION FOR UNMARRIED INDI-
VIDUALS WITH AT LEAST ONE QUALIFYING CHILD.— 
(1) IN GENERAL.—Part VII of subchapter B of 
chapter 1 is amended by redesignating section 224 
as section 225 and by inserting after section 223 the 
following new section: 
‘‘SEC. 224. DEDUCTION FOR UNMARRIED INDIVIDUALS 
WITH AT LEAST ONE QUALIFYING CHILD. 
‘‘(a) IN GENERAL.—In the case of an unmarried indi-
vidual with at least one qualifying child (within the mean-
ing of section 7705), there shall be allowed as a deduction 
an amount equal to $5,500. 
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‘‘(b) PHASEOUT OF DEDUCTION.—The amount of the 
deduction determined under subsection (a) (without re-
gard to this subsection) shall be reduced (but not below 
zero) by an amount equal to the excess (if any) of— 
‘‘(1) the taxpayer’s adjusted gross income (de-
termined without regard to this section) for the tax-
able year, over 
‘‘(2) $30,000. 
‘‘(c) UNMARRIED INDIVIDUAL.—For purposes of this 
section, the term ‘unmarried individual’ means any indi-
vidual who— 
‘‘(1) is not married as of the close of the tax-
able year (as determined by applying section 7703), 
‘‘(2) is not a surviving spouse (as defined in 
section 2(a)) for the taxable year, and 
‘‘(3) is not a dependent of another taxpayer for 
a taxable year beginning in the calendar year in 
which the individual’s taxable year begins. 
‘‘(d) INFLATION ADJUSTMENTS.— 
‘‘(1) DEDUCTION AMOUNT.—In the case of any 
taxable year beginning after 2014, the dollar amount 
in subsection (a) shall be increased by an amount 
equal to— 
‘‘(A) such dollar amount, multiplied by 
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‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for the calendar 
year in which the taxable year begins. 
‘‘(2) PHASEOUT THRESHOLD.—In the case of 
any taxable year beginning after 2015, the dollar 
amount in subsection (b)(2) shall be increased by an 
amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for the calendar 
year in which the taxable year begins deter-
mined by substituting ‘calendar year 2014’ for 
‘calendar year 2012’ in clause (ii) thereof. 
‘‘(3) ROUNDING.—If any increase determined 
under paragraph (1) or (2) is not a multiple of 
$100, such increase shall be rounded to the next 
lowest multiple of $100.’’. 
(2) DEDUCTION ALLOWED WHETHER OR NOT 
TAXPAYER ITEMIZES DEDUCTIONS.—Section 62(a) is 
amended by adding at the end the following new 
paragraph: 
‘‘(22) DEDUCTION
FOR
UNMARRIED
INDIVID-
UALS WITH AT LEAST ONE QUALIFYING CHILD.— 
The deduction allowed by section 224.’’. 
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(c) APPLICATION OF STANDARD DEDUCTION PHASE-
OUT TO ITEMIZED DEDUCTIONS.—Subsection (f) of sec-
tion 63 is amended to read as follows: 
‘‘(f) APPLICATION OF PHASEOUT OF STANDARD DE-
DUCTION TO ITEMIZED DEDUCTIONS.— 
‘‘(1) IN GENERAL.—In the case of an individual 
whose modified adjusted gross income (as defined in 
section 2(b)) exceeds the amount in effect under 
subsection (c)(2)(B) with respect to the taxpayer for 
the taxable year, the amount of the itemized deduc-
tions otherwise allowable for the taxable year shall 
be reduced by the lesser of— 
‘‘(A) 20 percent of the excess described in 
subsection (c)(2) with respect to such taxpayer 
for such taxable year, or 
‘‘(B) the amount of the taxpayer’s stand-
ard deduction for such taxable year (determined 
without regard to subsection (c)(2) and without 
regard to any election to itemize deductions). 
‘‘(2) COORDINATION
WITH
OTHER
LIMITA-
TIONS.—This subsection shall be applied after the 
application of any other limitation on the allowance 
of any itemized deduction. 
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‘‘(3) EXCEPTION FOR ESTATES AND TRUSTS.— 
This subsection shall not apply to any estate or 
trust.’’. 
(d) CONFORMING AMENDMENTS.— 
(1) Sections 86(b)(2)(A) and 137(b)(3)(A) are 
each amended by inserting ‘‘224,’’ before ‘‘911,’’. 
(2) Section 199(d)(2)(B) is amended by insert-
ing ‘‘section 224 and’’ before ‘‘this section’’. 
(3) Section 469(i)(3)(F)(iii) is amended by in-
serting ‘‘and 224’’ after ‘‘219,’’. 
(4) Section 1398(c), as amended by section 
1003(c), is amended— 
(A) by striking ‘‘BASIC’’ in the heading 
thereof, 
(B) by striking ‘‘BASIC STANDARD’’ in the 
heading 
of 
paragraph 
(2) 
and 
inserting 
‘‘STANDARD’’, and 
(C) by striking ‘‘basic’’ in paragraph (2). 
(5) Section 3402(m)(3) is amended by striking 
‘‘(including the additional standard deduction under 
section 63(c)(3) for the aged and blind)’’. 
(6) Section 6014(b)(4) is amended by striking 
‘‘section 63(c)(5)’’ and inserting ‘‘section 63(c)(4)’’. 
(7) The table of sections for part VII of sub-
chapter B of chapter 1 is amended by redesignating 
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the item relating to section 224 as an item relating 
to section 225 and by inserting after the item relat-
ing to section 223 the following new item: 
‘‘Sec. 224. Deduction for unmarried individuals with at least one qualifying 
child.’’. 
(e) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1102. INCREASE AND EXPANSION OF CHILD TAX CRED-
IT. 
(a) IN GENERAL.—Section 24 is amended to read as 
follows: 
‘‘SEC. 24. CHILD AND DEPENDENT TAX CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter 
for the taxable year with respect to each dependent of the 
taxpayer an amount equal to $500 ($1,500 in the case 
of a qualifying child). 
‘‘(b) PHASEOUT OF CREDIT.— 
‘‘(1) IN GENERAL.—The credit allowed under 
subsection (a) (determined without regard to this 
subsection) shall be reduced (but not below zero) by 
5 percent of the excess (if any) of— 
‘‘(A) the taxpayer’s modified adjusted 
gross income (as defined in section 2(b)), over 
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‘‘(B)(i) the joint return child credit phase-
out threshold, in the case of a joint return or 
a surviving spouse (as defined in section 2(a)), 
or 
‘‘(ii) the non-joint return child credit 
phaseout threshold, in any other case. 
‘‘(2) JOINT RETURN CHILD CREDIT PHASEOUT 
THRESHOLD.—For purposes of this section, the 
term ‘joint return child credit phaseout threshold’ 
means, with respect to any taxable year, the sum 
of— 
‘‘(A) the joint return standard deduction 
phaseout threshold (as defined in section 
63(c)(3)(A)), plus 
‘‘(B) an amount equal to— 
‘‘(i) the dollar amount in effect under 
section 63(c)(1)(A) for such taxable year, 
divided by 
‘‘(ii) 0.2. 
‘‘(3) 
NON-JOINT
RETURN
CHILD
CREDIT 
PHASEOUT THRESHOLD.—For purposes of this sec-
tion, the term ‘non-joint return child credit phaseout 
threshold’ means, with respect to any taxable year, 
the sum of— 
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‘‘(A) the non-joint return standard deduc-
tion phaseout threshold (as defined in section 
63(c)(3)(B)), plus 
‘‘(B) an amount equal to— 
‘‘(i) the dollar amount in effect under 
section 63(c)(1)(B) for such taxable year, 
divided by 
‘‘(ii) 0.2. 
‘‘(c) QUALIFYING CHILD.—For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the term ‘qualifying child’ has the mean-
ing given such term by section 7705. 
‘‘(2) EXCEPTION FOR CERTAIN NONCITIZENS.— 
The term ‘qualifying child’ shall not include any in-
dividual who would not be a dependent if subpara-
graph (A) of section 7705(b)(3) were applied with-
out regard to all that follows ‘resident of the United 
States’. 
‘‘(d) PORTION OF CREDIT REFUNDABLE.— 
‘‘(1) IN GENERAL.—The aggregate credits al-
lowed under subpart C shall be increased by the 
lesser of— 
‘‘(A) the credit which would be allowed 
under this section without regard to this sub-
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section and the limitation under section 26(a), 
or 
‘‘(B) the amount by which the aggregate 
amount of credits allowed under the subpart 
(determined without regard to this subsection) 
would increase if the limitation under section 
26(a) were increased by 25 percent of the tax-
payer’s earned income for the taxable year. 
The amount of the credit allowed under this sub-
section shall not be treated as a credit allowed under 
this subpart and shall reduce the amount of credit 
otherwise allowable under subsection (a) without re-
gard to section 26(a). 
‘‘(2) EARNED INCOME.—For purposes of this 
subsection— 
‘‘(A) IN GENERAL.—The term ‘earned in-
come’ means— 
‘‘(i) the taxpayer’s wages, salaries, 
tips, and other employee compensation, but 
only if such amounts are includible in 
gross income for the taxable year, plus 
‘‘(ii) the taxpayer’s net earnings from 
self-employment for the taxable year (with-
in the meaning of section 1402(a)) deter-
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mined with regard to the deduction allowed 
to the taxpayer by section 164(f). 
‘‘(B) SPECIAL
RULES.—For purposes of 
subparagraph (A)— 
‘‘(i) the earned income of an indi-
vidual shall be computed without regard to 
any community property laws, 
‘‘(ii) no amount received as a pension 
or annuity shall be taken into account, 
‘‘(iii) no amount to which section 
871(a) applies (relating to income of non-
resident alien individuals not connected 
with United States business) shall be taken 
into account, 
‘‘(iv) no amount received for services 
provided by an individual while the indi-
vidual is an inmate at a penal institution 
shall be taken into account, 
‘‘(v) no amount described in subpara-
graph (A) received for service performed in 
work activities as defined in paragraph (4) 
or (7) of section 407(d) of the Social Secu-
rity Act to which the taxpayer is assigned 
under any State program under part A of 
title IV of such Act shall be taken into ac-
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count, but only to the extent such amount 
is subsidized under such State program, 
and 
‘‘(vi) amounts excluded from gross in-
come by reason of section 112 shall be 
taken into account as earned income. 
‘‘(C) SPECIAL RULE FOR TAXABLE YEARS 
BEGINNING BEFORE 2018.—In the case of any 
taxable year beginning before January 1, 2018, 
the earned income of the taxpayer taken into 
account under paragraph (1) shall be reduced 
(but not below zero) by $3,000. 
‘‘(3) EXCEPTION FOR TAXPAYERS EXCLUDING 
FOREIGN EARNED INCOME.—Paragraph (1) shall not 
apply to any taxpayer for any taxable year if such 
taxpayer elects to exclude any amount from gross in-
come under section 911 for such taxable year. 
‘‘(e) INFLATION ADJUSTMENT.—In the case of any 
taxable year beginning after 2014, each dollar amount in 
subsection (a) shall be increased by an amount equal to— 
‘‘(1) such dollar amount, multiplied by 
‘‘(2) the cost-of-living adjustment determined 
under section 1(c)(2)(A) for the calendar year in 
which the taxable year begins. 
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If any increase determined under the preceding sentence 
is not a multiple of $100, such increase shall be rounded 
to the next lowest multiple of $100. 
‘‘(f) IDENTIFICATION REQUIREMENTS.— 
‘‘(1) IN GENERAL.—No credit shall be allowed 
under this section to a taxpayer with respect to any 
dependent unless the taxpayer includes the name 
and taxpayer identification number of such depend-
ent on the return of tax for the taxable year. 
‘‘(2) ADDITIONAL
IDENTIFICATION
REQUIRE-
MENT WITH RESPECT TO REFUNDABLE CREDIT.— 
‘‘(A) IN GENERAL.—Subsection (d) shall 
not apply to any taxpayer for any taxable year 
unless the taxpayer includes the taxpayer’s So-
cial Security number on the return of tax for 
such taxable year. 
‘‘(B) JOINT RETURNS.—In the case of a 
joint return, the requirement of subparagraph 
(A) shall be treated as met if the Social Secu-
rity number of either spouse is included on such 
return. 
‘‘(g) TAXABLE YEAR MUST BE FULL TAXABLE 
YEAR.—Except in the case of a taxable year closed by rea-
son of the death of the taxpayer, no credit shall be allow-
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able under this section in the case of a taxable year cov-
ering a period of less than 12 months.’’. 
(b) OMISSION
OF IDENTIFICATION INFORMATION 
TREATED AS MATHEMATICAL OR CLERICAL ERROR.— 
Subparagraph (I) of section 6213(g)(2) of such Code is 
amended to read as follows: 
‘‘(I) an omission of a correct TIN under 
section 24(f)(1) (relating to the child and de-
pendent tax credit), or a correct Social Security 
number under section 24(f)(2) (relating to the 
refundable portion of child and dependent tax 
credit), to be included on a return,’’. 
(c) APPLICATION OF RULE FOR SHORT TAXABLE 
YEARS.—Section 443(c) is amended to read as follows: 
‘‘(c) ADJUSTMENT IN CHILD AND DEPENDENT TAX 
CREDIT.—If a return is made for a short period by reason 
of subsection (a)(1) and if the tax is not computed under 
subsection (b)(2), then the credit allowed under section 
24 shall be reduced to an amount which bears the same 
ratio to the full amount of such credit as the number of 
months in the short period bears to 12.’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subpart A of part IV of subchapter A of chapter 1 
is amended by striking the item relating to section 24 and 
inserting the following new item: 
‘‘Sec. 24. Child and dependent tax credit.’’. 
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(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1103. MODIFICATION OF EARNED INCOME TAX CRED-
IT. 
(a) IN GENERAL.—Section 32 is amended to read as 
follows: 
‘‘SEC. 32. EARNED INCOME. 
‘‘(a) IN GENERAL.—In the case of an individual who 
is an eligible individual for any taxable year, there shall 
be allowed as a credit against the tax imposed by this sub-
title for such taxable year an amount equal to the tax-
payer’s employment-related taxes for such taxable year. 
‘‘(b) LIMITATIONS.— 
‘‘(1) DOLLAR LIMITATION.—The credit allowed 
under subsection (a) shall not exceed— 
‘‘(A) in the case of a taxpayer with 2 or 
more qualifying children, $3,000 ($4,000 in the 
case of a joint return), and 
‘‘(B) in the case of a taxpayer with 1 
qualifying child, $2,400. 
‘‘(2) PHASE-OUT OF CREDIT.—The credit al-
lowed under subsection (a) (determined after appli-
cation of paragraph (1)) shall be reduced (but not 
below zero) by the sum of— 
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‘‘(A) 19 percent of so much of the tax-
payer’s adjusted gross income (reduced by the 
amount of any excess described in subpara-
graph (B)) as exceeds $20,000 ($27,000 in the 
case of a joint return), plus 
‘‘(B) so much of the taxpayer’s investment 
income for the taxable year as exceeds $3,300. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) ELIGIBLE INDIVIDUAL.— 
‘‘(A) IN GENERAL.—The term ‘eligible in-
dividual’ means any individual who has a quali-
fying child for the taxable year. 
‘‘(B) QUALIFYING CHILD INELIGIBLE.—If 
an individual is the qualifying child of a tax-
payer for any taxable year of such taxpayer be-
ginning in a calendar year, such individual shall 
not be treated as an eligible individual for any 
taxable year of such individual beginning in 
such calendar year. 
‘‘(C) EXCEPTION FOR INDIVIDUAL CLAIM-
ING BENEFITS UNDER SECTION 911.—The term 
‘eligible individual’ does not include any indi-
vidual who claims the benefits of section 911 
(relating to citizens or residents living abroad) 
for the taxable year. 
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‘‘(D) LIMITATION ON ELIGIBILITY OF NON-
RESIDENT
ALIENS.—The term ‘eligible indi-
vidual’ shall not include any individual who is 
a nonresident alien individual for any portion of 
the taxable year unless such individual is treat-
ed for such taxable year as a resident of the 
United States for purposes of this chapter by 
reason of an election under subsection (g) or 
(h) of section 6013. 
‘‘(2) 
EMPLOYMENT-RELATED
TAXES.—The 
term ‘employment-related taxes’ means, with respect 
to any taxpayer for any taxable year, the sum of— 
‘‘(A) any tax imposed under sections 3101 
or 3111 on the wages (as defined in section 
3121(a)) received by the taxpayer during the 
calendar year in which the taxable year begins, 
‘‘(B) any tax imposed under sections 
3201(a), 3211(a), or 3221(a) on the compensa-
tion (as defined in section 3231(e)) received by 
the taxpayer during the calendar year in which 
the taxable year begins, and 
‘‘(C) any tax imposed under section 1401 
on the self-employment income of the taxpayer 
for the taxable year. 
‘‘(3) QUALIFYING CHILD.— 
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‘‘(A) IN GENERAL.—The term ‘qualifying 
child’ means a qualifying child of the taxpayer 
(within the meaning of section 7705, deter-
mined without regard to subsections (c)(1)(D) 
and (e) thereof). 
‘‘(B) PLACE OF ABODE.—For purposes of 
subparagraph (A), the requirements of section 
7705(c)(1)(B) shall be met only if the principal 
place of abode is in the United States. 
‘‘(C) TREATMENT
OF
MILITARY
PER-
SONNEL
STATIONED
OUTSIDE
THE
UNITED 
STATES.—For purposes of subparagraph (B), 
the principal place of abode of a member of the 
Armed Forces of the United States shall be 
treated as in the United States during any pe-
riod during which such member is stationed 
outside the United States while serving on ex-
tended active duty with the Armed Forces of 
the United States. For purposes of the pre-
ceding sentence, the term ‘extended active duty’ 
means any period of active duty pursuant to a 
call or order to such duty for a period in excess 
of 90 days or for an indefinite period. 
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‘‘(4) INVESTMENT INCOME.—For purposes of 
paragraph (1), the term ‘investment income’ 
means— 
‘‘(A) interest or dividends to the extent in-
cludible in gross income for the taxable year, 
‘‘(B) interest received or accrued during 
the taxable year which is exempt from tax im-
posed by this chapter, 
‘‘(C) the excess (if any) of— 
‘‘(i) gross income from rents or royal-
ties not derived in the ordinary course of 
a trade or business, over 
‘‘(ii) the sum of— 
‘‘(I) the deductions (other than 
interest) which are clearly and directly 
allocable to such gross income, plus 
‘‘(II) interest deductions properly 
allocable to such gross income, 
‘‘(D) the capital gain net income (as de-
fined in section 1222) of the taxpayer for such 
taxable year, and 
‘‘(E) the excess (if any) of— 
‘‘(i) the aggregate income from all 
passive activities for the taxable year (de-
termined without regard to any amount 
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with respect to which a tax described in 
subsection (c)(2) is imposed or an amount 
described in a preceding subparagraph), 
over 
‘‘(ii) the aggregate losses from all pas-
sive activities for the taxable year (as so 
determined). 
For purposes of subparagraph (E), the term 
‘passive activity’ has the meaning given such 
term by section 469. 
‘‘(d) IDENTIFICATION REQUIREMENTS.— 
‘‘(1) IN GENERAL.—No credit shall be allowed 
under this section unless the taxpayer includes on 
the return of tax for the taxable year— 
‘‘(A) the taxpayer’s Social Security num-
ber, and 
‘‘(B) the name, age, and Social Security 
number of each qualifying child taken into ac-
count under subsection (b)(1). 
‘‘(2) JOINT RETURNS.—In the case of a joint 
return, the requirement of paragraph (1)(A) shall be 
treated as met if the Social Security number of ei-
ther spouse is included on such return. 
‘‘(3) OTHER
METHODS
OF
PROVIDING
CHIL-
DREN’S
INFORMATION.—The Secretary may pre-
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‘‘(2) TAXPAYERS
MAKING
IMPROPER
PRIOR 
CLAIMS.—In the case of a taxpayer who is denied 
credit under this section for any taxable year as a 
result of the deficiency procedures under subchapter 
B of chapter 63, no credit shall be allowed under 
this section for any subsequent taxable year unless 
the taxpayer provides such information as the Sec-
retary may require to demonstrate eligibility for 
such credit. 
‘‘(f) OTHER SPECIAL RULES.—For purposes of this 
section— 
‘‘(1) MARRIED INDIVIDUALS.—In the case of an 
individual who is married (within the meaning of 
section 7703), this section shall apply only if a joint 
return is filed for the taxable year under section 
6013. 
‘‘(2) TAXABLE YEAR MUST BE FULL TAXABLE 
YEAR.—Except in the case of a taxable year closed 
by reason of the death of the taxpayer, no credit 
shall be allowable under this section in the case of 
a taxable year covering a period of less than 12 
months. 
‘‘(3) COORDINATION
WITH
CERTAIN
MEANS- 
TESTED PROGRAMS.—For purposes of— 
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‘‘(A) the United States Housing Act of 
1937, 
‘‘(B) title V of the Housing Act of 1949, 
‘‘(C) section 101 of the Housing and 
Urban Development Act of 1965, 
‘‘(D) sections 221(d)(3), 235, and 236 of 
the National Housing Act, and 
‘‘(E) the Food and Nutrition Act of 2008, 
any refund made to an individual (or the spouse of 
an individual) by reason of this section, and any 
payment made to such individual (or such spouse) 
by an employer under section 3507, shall not be 
treated as income (and shall not be taken into ac-
count in determining resources for the month of its 
receipt and the following month). 
‘‘(4) COORDINATION WITH PAYROLL TAX CRED-
ITS.—The credit allowed under subsection (a) with 
respect to any taxpayer for any taxable year shall be 
reduced by the sum of the credits allowed under sec-
tions 3103 and 3203 with respect to such taxpayer 
for such taxable year. 
‘‘(g) APPLICATION TO CERTAIN INDIVIDUALS WITH-
OUT QUALIFYING CHILDREN.—For purposes of this sec-
tion and sections 3103 and 3203— 
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‘‘(1) IN GENERAL.—In the case of an individual 
described in paragraph (2)— 
‘‘(A) such individual shall be treated as an 
eligible individual, 
‘‘(B) notwithstanding subsection (i), the 
dollar limitation applicable to such individual 
under subsection (b)(1) shall be $100 (twice 
such amount in the case of a joint return), 
‘‘(C) subsection (b)(2)(A) shall be applied 
by substituting ‘$8,000 ($13,000’ for ‘$20,000 
($27,000’, and 
‘‘(D) subsection (i)(1) shall not apply and 
the employment-related taxes with respect to 
such individual for any taxable year shall not 
exceed the sum of— 
‘‘(i) any tax imposed under section 
3101 on the wages (as defined in section 
3121(a)) received by the taxpayer during 
the calendar year in which the taxable year 
begins, 
‘‘(ii) any tax imposed under sections 
3201(a) (and so much of the tax imposed 
by section 3211(a) as is attributable to the 
rates of tax under subsections (a) and (b) 
of section 3101) on the compensation (as 
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defined in section 3231(e)) received by the 
taxpayer during the calendar year in which 
the taxable year begins, and 
‘‘(iii) 50 percent of any tax imposed 
under section 1401 on the self-employment 
income of the taxpayer for the taxable 
year. 
‘‘(2) INDIVIDUAL
TO
WHOM
SUBSECTION
AP-
PLIES.—An individual is described in this paragraph 
for any taxable year if— 
‘‘(A) such individual does not have a quali-
fying child for the taxable year, 
‘‘(B) such individual’s principal place of 
abode is in the United States for more than 
one-half of such taxable year, 
‘‘(C) such individual (or, if the individual 
is married (within the meaning of section 
7703), either the individual or the individual’s 
spouse) has attained age 25 but not attained 
age 65 before the close of the taxable year, and 
‘‘(D) such individual is not a dependent of 
another taxpayer for any taxable year beginning 
in the same calendar year as such taxable year. 
‘‘(h) INFLATION ADJUSTMENT.—In the case of any 
taxable year beginning after 2014, both dollar amounts 
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in subsection (b)(1)(A), the dollar amount in subsection 
(b)(1)(B), both dollar amounts in subsection (b)(2)(A), 
the dollar amount in subsection (b)(2)(B), the $100 
amount in subsection (g)(1)(B), the $8,000 and $13,000 
amounts in subsection (g)(1)(C), the $4,000 amount in 
subsection (i)(2), and the $3,000 amount in subsection 
(i)(3), shall each be increased by an amount equal to— 
‘‘(1) such dollar amount, multiplied by 
‘‘(2) the cost-of-living adjustment determined 
under section 1(c)(2)(A) for the calendar year in 
which the taxable year begins. 
If any increase determined under the preceding sentence 
is not a multiple of $100 ($10 in the case of the $100 
amount in subsection (g)(1)(B)), such increase shall be 
rounded to the next lowest multiple of $100 ($10 in the 
case of the $100 amount in subsection (g)(1)(B)). 
‘‘(i) SPECIAL RULES FOR TAXABLE YEARS BEGIN-
NING BEFORE 2018.—In the case of any taxable year be-
ginning before January 1, 2018— 
‘‘(1) subsection (a) shall be applied by sub-
stituting ‘200 percent of the taxpayer’s employment- 
related taxes’ for ‘the taxpayer’s employment-related 
taxes’, 
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‘‘(2) subsection (b)(1)(A) shall be applied by 
substituting ‘$4,000’ for ‘$3,000 ($4,000 in the case 
of a joint return)’, and 
‘‘(3) subsection (b)(1)(B) shall be applied by 
substituting ‘$3,000’ for ‘$2,400’.’’. 
(b) CREDIT ALLOWED AGAINST PAYROLL TAXES.— 
(1) FICA TAX.—Subchapter A of chapter 21 is 
amended by adding at the end the following new sec-
tion: 
‘‘SEC. 3103. CREDIT AGAINST TAX. 
‘‘(a) IN GENERAL.—In the case of an individual who 
is allowed a credit under section 32 (determined without 
regard to subsection (f)(4) thereof) for a taxable year, 
there shall be allowed as a credit against the tax imposed 
by section 3101 with respect to wages received by such 
individual during the calendar year ending with or within 
such taxable year the lesser of— 
‘‘(1) the amount of tax so imposed, or 
‘‘(2) the amount of the credit allowed under 
section 32 (as so determined) for such taxable year. 
‘‘(b) APPLICATION OF CREDIT.—The credit deter-
mined under subsection (a) shall be taken into account 
under this title in the same manner as a credit or refund 
to which the taxpayer is entitled under section 6413(c)(1). 
Such credit shall not be taken into account for purposes 
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of determining any amount deducted and withheld under 
section 3102.’’. 
(2) RAILROAD RETIREMENT TAX.—Subchapter 
A of chapter 22 is amended by adding at the end 
the following new section: 
‘‘SEC. 3203. CREDIT AGAINST TAX. 
‘‘(a) IN GENERAL.—In the case of an individual who 
is allowed a credit under section 32 (determined without 
regard to subsection (f)(4) thereof) for a taxable year, 
there shall be allowed as a credit against the tax imposed 
by section 3201(a) (and so much of the tax imposed by 
section 3211(a) as is attributable to the rates of tax under 
subsections (a) and (b) of section 3101) with respect to 
compensation received by such individual during the cal-
endar year ending with or within such taxable year the 
lesser of— 
‘‘(1) the amount of tax so imposed, or 
‘‘(2) the excess of— 
‘‘(A) the amount of the credit allowed 
under section 32 (as so determined) for such 
taxable year, over 
‘‘(B) the amount of the credit allowed 
under section 3103. 
‘‘(b) APPLICATION OF CREDIT.—The credit deter-
mined under subsection (a) shall be taken into account 
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under this title in the same manner as a credit or refund 
to which the taxpayer is entitled under section 6413(c)(1). 
Such credit shall not be taken into account for purposes 
of determining any amount deducted and withheld under 
section 3202.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 86(f)(2) is amended by striking 
‘‘section 32(c)(2)’’ and inserting ‘‘section 24(d)(2)’’. 
(2) Section 129(e)(2) is amended by striking 
‘‘section 32(c)(2)’’ and inserting ‘‘section 24(d)(2)’’ 
(3) Section 6051(a)(10) is amended by striking 
‘‘for purposes of section 32 (relating to earned in-
come 
credit)’’ 
and 
inserting 
‘‘under 
section 
24(d)(2)’’. 
(4) Section 6211(b)(4)(A) is amended by insert-
ing ‘‘(determined without regard to subsection (f)(4) 
thereof)’’ after ‘‘32’’. 
(5) Section 6213(g)(2)(F) is amended by strik-
ing ‘‘taxpayer identification number’’ and inserting 
‘‘Social Security number’’. 
(6) Section 6213(g)(2)(G) is amended by strik-
ing ‘‘with respect to’’ and all that follows and insert-
ing ‘‘with respect to the tax imposed under section 
1401 (relating to self-employment tax) to the extent 
such tax has not been paid,’’. 
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(7) Section 6213(g)(2)(K) is amended by strik-
ing ‘‘section 32(k)(2)’’ and inserting ‘‘section 
32(e)(2)’’. 
(8) Section 7705(f)(6)(B), as redesignated by 
this Act, is amended by striking clause (iv), by strik-
ing ‘‘, and’’ at the end of clause (iii) and inserting 
a period, and by inserting ‘‘and’’ at the end of 
clause (ii). 
(9) The table of sections for subchapter A of 
chapter 21 is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 3103. Credit against tax.’’. 
(10) The table of sections for subchapter A of 
chapter 22 is amended by adding at the end the fol-
lowing new item: 
‘‘Sec. 3203. Credit against tax.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
(e) TREATMENT OF TAXPAYERS WHO IMPROPERLY 
CLAIMED CREDIT IN PRIOR YEARS.—A claim of credit 
under section 32 of the Internal Revenue Code of 1986 
(as in effect before the amendments made by this section) 
shall not fail to be taken into account under subsection 
(e) of such section (as amended by this section) merely 
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because such claim is for a taxable year beginning before 
January 1, 2015. 
(f) 
TREASURY
REPORT
ON
MAKING
CREDIT 
ADVANCEABLE.—Not later than the date which is 180 
days after the date of the enactment of this Act, the Sec-
retary of the Treasury (or the Secretary’s designee) shall 
submit a report to Congress making recommendations re-
garding the best method for providing for advance pay-
ment of the credits established by the amendments made 
by this section. The recommendations in such report shall 
seek to— 
(1) provide for the payment of such credits to 
taxpayers as promptly as is feasible, including on a 
weekly, biweekly, or monthly basis, and 
(2) minimize any administrative burdens on em-
ployers and the Internal Revenue Service. 
SEC. 1104. REPEAL OF DEDUCTION FOR PERSONAL EXEMP-
TIONS. 
(a) IN GENERAL.—Part V of subchapter B of chapter 
1 is hereby repealed. 
(b) DEFINITION OF DEPENDENT RETAINED.— 
(1) IN GENERAL.—Section 152, prior to repeal 
by subsection (a), is hereby redesignated as section 
7705 and moved to the end of chapter 79. 
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(2) MODIFICATION OF AGE REQUIREMENTS.— 
Section 7705(c)(3)(A), as redesignated by paragraph 
(1), is amended by striking ‘‘as a qualifying child 
and—’’ and all that follows and inserting ‘‘is a 
qualifying child and has not attained the age of 18 
as of the close of the calendar year in which the tax-
able year of the taxpayer begins.’’. 
(c) APPLICATION TO ESTATES AND TRUSTS.—Sub-
section (b) of section 642 is amended— 
(1) by striking paragraph (2)(C), 
(2) by striking paragraph (3), and 
(3) by striking ‘‘DEDUCTION FOR PERSONAL 
EXEMPTION’’ in the heading thereof and inserting 
‘‘BASIC DEDUCTION’’. 
(d) APPLICATION TO NONRESIDENT ALIENS.—Sec-
tion 873(b) is amended by striking paragraph (3). 
(e) 
MODIFICATION
OF
WAGE
WITHHOLDING 
RULES.— 
(1) 
IN
GENERAL.—Section 
3402(a)(2) 
is 
amended by striking ‘‘the amount of one personal 
exemption provided in section 151(b)’’ and inserting 
‘‘$3,900’’. 
(2) INFLATION ADJUSTMENT.—Section 3402(a) 
is amended by adding at the end the following new 
paragraph: 
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‘‘(3) INFLATION ADJUSTMENT.—In the case of 
any calendar year beginning after 2014, the $3,900 
amount in paragraph (2) shall be increased by an 
amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for such cal-
endar year. 
If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall 
be rounded to the next lowest multiple of $100.’’. 
(3) 
NUMBER
OF
EXEMPTIONS.—Section 
3402(f)(1) is amended— 
(A) in subparagraph (A), by striking ‘‘an 
individual described in section 151(d)(2)’’ and 
inserting ‘‘a dependent of any other taxpayer’’, 
and 
(B) in subparagraph (C), by striking ‘‘with 
respect to whom, on the basis of facts existing 
at the beginning of such day, there may reason-
ably be expected to be allowable an exemption 
under section 151(c)’’ and inserting ‘‘who, on 
the basis of facts existing at the beginning of 
such day, is reasonably expected to be a de-
pendent of the employee’’. 
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(f) MODIFICATION OF RETURN REQUIREMENT.— 
(1) IN
GENERAL.—Paragraph (1) of section 
6012(a) is amended to read as follows: 
‘‘(1) Every individual who has gross income for 
the taxable year, except that a return shall not be 
required of— 
‘‘(A) an individual who is not married (de-
termined by applying section 7703) and who 
has gross income for the taxable year which 
does not exceed the standard deduction applica-
ble to such individual for such taxable year 
under section 63, or 
‘‘(B) an individual entitled to make a joint 
return if— 
‘‘(i) the gross income of such indi-
vidual, when combined with the gross in-
come of such individual’s spouse, for the 
taxable year does not exceed the standard 
deduction which would be applicable to the 
taxpayer for such taxable year under sec-
tion 63 if such individual and such individ-
ual’s spouse made a joint return, 
‘‘(ii) such individual and such individ-
ual’s spouse have the same household as 
their home at the close of the taxable year, 
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‘‘(iii) such individual’s spouse does not 
make a separate return, and 
‘‘(iv) neither such individual nor such 
individual’s spouse is an individual de-
scribed in section 63(c)(4) who has income 
(other than earned income) in excess of the 
amount 
in 
effect 
under 
section 
63(c)(4)(A).’’. 
(2) BANKRUPTCY ESTATES.—Paragraph (8) of 
section 6012(a) is amended by striking ‘‘the sum of 
the exemption amount plus the basic standard de-
duction under section 63(c)(2)(D)’’ and inserting 
‘‘the standard deduction in effect under section 
63(c)(1)(B)’’. 
(g) CONFORMING AMENDMENTS.— 
(1) Section 2(a)(1)(B) is amended by striking 
‘‘a dependent’’ and all that follows through ‘‘section 
151’’ and inserting ‘‘a dependent who (within the 
meaning of section 7705, determined without regard 
to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) 
is a son, stepson, daughter, or stepdaughter of the 
taxpayer’’. 
(2) Section 36B(b)(2)(A) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 
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(3) Section 36B(b)(3)(B) is amended by strik-
ing ‘‘unless a deduction is allowed under section 151 
for the taxable year with respect to a dependent’’ in 
the flush matter at the end and inserting ‘‘unless 
the taxpayer has a dependent for the taxable year’’. 
(4) Section 36B(c)(1)(D) is amended by strik-
ing ‘‘with respect to whom a deduction under section 
151 is allowable to another taxpayer’’ and inserting 
‘‘who is a dependent of another taxpayer’’. 
(5) Section 36B(d)(1) is amended by striking 
‘‘equal to the number of individuals for whom the 
taxpayer is allowed a deduction under section 151 
(relating to allowance of deduction for personal ex-
emptions) for the taxable year’’ and inserting ‘‘the 
sum of 1 (2 in the case of a joint return) plus the 
number of the taxpayer’s dependents for the taxable 
year’’. 
(6) Section 36B(e)(1) is amended by striking 
‘‘1 or more individuals for whom a taxpayer is al-
lowed a deduction under section 151 (relating to al-
lowance of deduction for personal exemptions) for 
the taxable year (including the taxpayer or his 
spouse)’’ and inserting ‘‘1 or more of the taxpayer, 
the taxpayer’s spouse, or any dependent of the tax-
payer’’. 
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(7) Section 42(i)(3)(D)(ii)(I) is amended— 
(A) by striking ‘‘section 152’’ and insert-
ing ‘‘section 7705’’, and 
(B) by striking the period at the end and 
inserting a comma. 
(8) Section 63(b) is amended by striking 
‘‘minus—’’ and all that follows and inserting ‘‘minus 
the standard deduction.’’. 
(9) Section 63(d) is amended by striking ‘‘other 
than—’’ and all that follows and inserting ‘‘other 
than the deductions allowable in arriving at adjusted 
gross income.’’. 
(10) Section 72(t)(2)(D)(i)(III) is amended by 
striking ‘‘section 152’’ and inserting ‘‘section 7705’’. 
(11) Section 72(t)(7)(A)(iii) is amended by 
striking ‘‘section 152(f)(1)’’ and inserting ‘‘section 
7705(f)(1)’’. 
(12) Section 105(b) is amended— 
(A) by striking ‘‘as defined in section 152’’ 
and inserting ‘‘as defined in section 7705’’, 
(B) by striking ‘‘section 152(f)(1)’’ and in-
serting ‘‘section 7705(f)(1)’’ and 
(C) by striking ‘‘section 152(e)’’ and in-
serting ‘‘section 7705(e)’’. 
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100 
(13) Section 105(c)(1) is amended by striking 
‘‘section 152’’ and inserting ‘‘section 7705’’. 
(14) Section 125(e)(1)(D) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 
(15) Section 129(c) is amended— 
(A) by striking ‘‘with respect to whom, for 
such taxable year, a deduction is allowable 
under section 151(c) (relating to personal ex-
emptions for dependents) to’’ in paragraph (1) 
and inserting ‘‘who is a dependent of’’, and 
(B) by striking ‘‘section 152(f)(1)’’ in 
paragraph 
(2) 
and 
inserting 
‘‘section 
7705(f)(1)’’. 
(16) Section 132(h)(2)(B) is amended— 
(A) by striking ‘‘section 152(f)(1)’’ and in-
serting ‘‘section 7705(f)(1)’’, and 
(B) by striking ‘‘section 152(e)’’ and in-
serting ‘‘section 7705(e)’’. 
(17) Section 139D(c)(5) is amended by striking 
‘‘section 152’’ and inserting ‘‘section 7705’’. 
(18) Section 162(l)(1)(D) is amended by strik-
ing ‘‘section 152(f)(1)’’ and inserting ‘‘section 
7705(f)(1)’’. 
(19) Section 170(g)(1) is amended by striking 
‘‘section 152’’ and inserting ‘‘section 7705’’. 
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101 
(20) Section 170(g)(3) is amended by striking 
‘‘section 
152(d)(2)’’ 
and 
inserting 
‘‘section 
7705(d)(2)’’. 
(21) Section 172(d) is amended by striking 
paragraph (3). 
(22) Section 220(b)(6) is amended by striking 
‘‘with respect to whom a deduction under section 
151 is allowable to’’ and inserting ‘‘who is a depend-
ent of’’. 
(23) Section 220(d)(2)(A) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 
(24) Section 223(b)(6) is amended by striking 
‘‘with respect to whom a deduction under section 
151 is allowable to’’ and inserting ‘‘who is a depend-
ent of’’. 
(25) Section 223(d)(2)(A) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 
(26) Section 401(h) is amended by striking 
‘‘section 152(f)(1)’’ in the last sentence and insert-
ing ‘‘section 7705(f)(1)’’. 
(27) Section 402(l)(4)(D) is amended by strik-
ing ‘‘section 152’’ and inserting ‘‘section 7705’’. 
(28) Section 409A(a)(2)(B)(ii)(I) is amended 
by striking ‘‘section 152(a)’’ and inserting ‘‘section 
7705(a)’’. 
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102 
(29) Section 501(c)(9) is amended by striking 
‘‘section 
152(f)(1)’’ 
and 
inserting 
‘‘section 
7705(f)(1)’’. 
(30) Section 529(e)(2)(B) is amended by strik-
ing ‘‘section 152(d)(2)’’ and inserting ‘‘section 
7705(d)(2)’’. 
(31) Section 703(a)(2) is amended by striking 
subparagraph (A) and by redesignating subpara-
graphs (B) through (F) as subparagraphs (A) 
through (E), respectively. 
(32) Section 874 is amended by striking sub-
section (b) and by redesignating subsection (c) as 
subsection (b). 
(33) Section 891 is amended by striking ‘‘under 
section 151 and’’. 
(34) Section 904(b) is amended by striking 
paragraph (1). 
(35) Section 931(b)(1) is amended by striking 
‘‘(other than the deduction under section 151, relat-
ing to personal exemptions)’’. 
(36) Section 933 is amended— 
(A) by striking ‘‘(other than the deduction 
under section 151, relating to personal exemp-
tions)’’ in paragraph (1), and 
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‘‘(2) EXEMPT AMOUNT.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘exempt amount’ means an 
amount equal to— 
‘‘(i) the sum of the standard deduc-
tion and the personal exemption amount, 
divided by 
‘‘(ii) 52. 
‘‘(B) PERSONAL
EXEMPTION
AMOUNT.— 
For purposes of subparagraph (A), the personal 
exemption amount is $3,900 multiplied by the 
number of the taxpayer’s dependents for the 
taxable year in which the levy occurs. 
‘‘(C) INFLATION
ADJUSTMENT.—In the 
case of any taxable year beginning after 2014, 
the $3,900 amount in subparagraph (B) shall 
be increased by an amount equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(c)(2)(A) for the 
calendar year in which the taxable year be-
gins. 
If any increase determined under the preceding 
sentence is not a multiple of $100, such in-
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crease shall be rounded to the next lowest mul-
tiple of $100. 
‘‘(D) VERIFIED STATEMENT.—Unless the 
taxpayer submits to the Secretary a written and 
properly verified statement specifying the facts 
necessary to determine the proper amount 
under subparagraph (A), subparagraph (A) 
shall be applied as if the taxpayer were a mar-
ried individual filing a separate return with no 
dependents.’’. 
(49) Section 7702B(f)(2)(C)(iii) is amended by 
striking ‘‘section 152(d)(2)’’ and inserting ‘‘section 
7705(d)(2)’’. 
(50) Section 7703(a) is amended by striking 
‘‘part V of subchapter B of chapter 1 and’’. 
(51) Section 7703(b)(1) is amended by striking 
‘‘section 152(f)(1)’’ and all that follows and insert-
ing ‘‘section 7705(f)(1),’’. 
(52) Section 7705(a), as redesignated by this 
section, is amended by striking ‘‘this subtitle’’ and 
inserting ‘‘subtitle A’’. 
(53)(A) Section 7705(d)(1)(B), as redesignated 
by this section, is amended by striking ‘‘the exemp-
tion amount (as defined in section 151(d))’’ and in-
serting ‘‘$3,900’’. 
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(B) Section 7705(d), as redesignated by this 
section, is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(6) INFLATION ADJUSTMENT.—In the case of 
any calendar year beginning after 2014, the $3,900 
amount in paragraph (1)(B) shall be increased by an 
amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for such cal-
endar year. 
If any increase determined under the preceding sen-
tence is not a multiple of $100, such increase shall 
be rounded to the next lowest multiple of $100.’’. 
(54) The table of sections for chapter 79 is 
amended by adding at the end the following new 
item: 
‘‘Sec. 7705. Dependent defined.’’. 
(h) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
Subtitle C—Simplification of 
Education Incentives 
SEC. 1201. AMERICAN OPPORTUNITY TAX CREDIT. 
(a) IN GENERAL.—Section 25A is amended to read 
as follows: 
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‘‘SEC. 25A. AMERICAN OPPORTUNITY TAX CREDIT. 
‘‘(a) IN GENERAL.—In the case of an individual, 
there shall be allowed as a credit against the tax imposed 
by this chapter for the taxable year an amount equal to 
the sum of— 
‘‘(1) 100 percent of so much of the qualified 
tuition and related expenses paid by the taxpayer 
during the taxable year (for education furnished to 
any eligible student for whom an election is in effect 
under this section for such taxable year during any 
academic period beginning in such taxable year) as 
does not exceed $2,000, plus 
‘‘(2) 25 percent of so much of such expenses so 
paid as exceeds the dollar amount in effect under 
paragraph (1) but does not exceed twice such dollar 
amount. 
‘‘(b) PORTION OF CREDIT REFUNDABLE.—So much 
of the credit allowable under subsection (a) (determined 
without regard to this subsection and section 26(a) and 
after application of all other provisions of this section) as 
does not exceed $1,500 shall be treated as a credit allow-
able under subpart C (and not under this part). The pre-
ceding sentence shall not apply to any taxpayer for any 
taxable year if such taxpayer is a child to whom section 
1(d) applies for such taxable year. 
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‘‘(c) LIMITATION BASED ON MODIFIED ADJUSTED 
GROSS INCOME.— 
‘‘(1) IN GENERAL.—The amount allowable as a 
credit under subsection (a) for any taxable year shall 
be reduced (but not below zero) by an amount which 
bears the same ratio to the amount so allowable (de-
termined without regard to this subsection and sub-
section (b) but after application of all other provi-
sions of this section) as— 
‘‘(A) the excess of— 
‘‘(i) the taxpayer’s modified adjusted 
gross income for such taxable year, over 
‘‘(ii) $43,000 (twice such amount in 
the case of a joint return), bears to 
‘‘(B) $20,000 (twice such amount in the 
case of a joint return). 
‘‘(2) MODIFIED
ADJUSTED
GROSS
INCOME.— 
For purposes of this subsection, the term ‘modified 
adjusted gross income’ means the adjusted gross in-
come of the taxpayer for the taxable year increased 
by any amount excluded from gross income under 
section 911, 931, or 933. 
‘‘(d) OTHER LIMITATIONS.— 
‘‘(1) CREDIT ALLOWED ONLY FOR 4 TAXABLE 
YEARS.—An election to have this section apply may 
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not be made for any taxable year if such an election 
(by the taxpayer or any other individual) is in effect 
with respect to such student for any 4 prior taxable 
years. 
‘‘(2) CREDIT
ALLOWED
ONLY
FOR
FIRST
YEARS OF POSTSECONDARY EDUCATION.—No credit 
shall be allowed under subsection (a) for a taxable 
year with respect to the qualified tuition and related 
expenses of an eligible student if the student has 
completed (before the beginning of such taxable 
year) the first 4 years of postsecondary education at 
an eligible educational institution. 
‘‘(e) DEFINITIONS.—For purposes of this section— 
‘‘(1) ELIGIBLE STUDENT.—The term ‘eligible 
student’ means, with respect to any academic period, 
a student who— 
‘‘(A) meets the requirements of section 
484(a)(1) of the Higher Education Act of 1965 
(20 U.S.C. 1091(a)(1)), as in effect on August 
5, 1997, and 
‘‘(B) is carrying at least 1⁄2 the normal 
full-time work load for the course of study the 
student is pursuing. 
‘‘(2) QUALIFIED
TUITION
AND
RELATED
EX-
PENSES.— 
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‘‘(A) IN
GENERAL.—The term ‘qualified 
tuition and related expenses’ means tuition, 
fees, and course materials, required for enroll-
ment or attendance of— 
‘‘(i) the taxpayer, 
‘‘(ii) the taxpayer’s spouse, or 
‘‘(iii) any dependent of the taxpayer, 
at an eligible educational institution for courses 
of instruction of such individual at such institu-
tion. 
‘‘(B) EXCEPTION FOR EDUCATION INVOLV-
ING SPORTS, ETC.—Such term does not include 
expenses with respect to any course or other 
education involving sports, games, or hobbies, 
unless such course or other education is part of 
the individual’s degree program. 
‘‘(C) 
EXCEPTION
FOR
NONACADEMIC 
FEES.—Such term does not include student ac-
tivity fees, athletic fees, insurance expenses, or 
other expenses unrelated to an individual’s aca-
demic course of instruction. 
‘‘(3) ELIGIBLE EDUCATIONAL INSTITUTION.— 
The term ‘eligible educational institution’ means an 
institution— 
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‘‘(A) which is described in section 481 of 
the Higher Education Act of 1965 (20 U.S.C. 
1088), as in effect on August 5, 1997, and 
‘‘(B) which is eligible to participate in a 
program under title IV of such Act. 
‘‘(f) SPECIAL RULES.— 
‘‘(1) 
IDENTIFICATION
REQUIREMENT.—No 
credit shall be allowed under subsection (a) to a tax-
payer with respect to the qualified tuition and re-
lated expenses of an individual unless the taxpayer 
includes the name and taxpayer identification num-
ber of such individual, and the employer identifica-
tion number of any institution to which such ex-
penses were paid, on the return of tax for the tax-
able year. 
‘‘(2) ADJUSTMENT
FOR
CERTAIN
SCHOLAR-
SHIPS, ETC.— 
‘‘(A) IN GENERAL.—The amount of quali-
fied tuition and related expenses otherwise 
taken into account under subsection (a) with re-
spect to an individual for an academic period 
shall be reduced (before the application of sub-
section (c)) by the sum of any amounts paid for 
the benefit of such individual which are allo-
cable to such period as— 
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‘‘(i) a qualified scholarship which is 
excludable from gross income under section 
117, 
‘‘(ii) an educational assistance allow-
ance under chapter 30, 31, 32, 34, or 35 
of title 38, United States Code, or under 
chapter 1606 of title 10, United States 
Code, and 
‘‘(iii) a payment (other than a gift, 
bequest, devise, or inheritance within the 
meaning of section 102(a)) for such indi-
vidual’s educational expenses, or attrib-
utable to such individual’s enrollment at an 
eligible educational institution, which is ex-
cludable from gross income under any law 
of the United States. 
‘‘(B) COORDINATION WITH PELL GRANTS 
NOT USED FOR QUALIFIED TUITION AND RE-
LATED EXPENSES.—For purposes of subpara-
graph (A), the amount of any Federal Pell 
Grant under section 401 of the Higher Edu-
cation Act of 1965 (20 U.S.C. 1070a) shall be 
reduced (but not below zero) by the amount of 
expenses (other than qualified tuition and re-
lated expenses) which are taken into account in 
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determining the cost of attendance (as defined 
in section 472 of the Higher Education Act of 
1965, as in effect on the date of the enactment 
of this paragraph) of such individual at an eligi-
ble educational institution for the academic pe-
riod for which the credit under this section is 
being determined. 
‘‘(3) TREATMENT OF EXPENSES PAID BY DE-
PENDENT.—If an individual is a dependent of an-
other taxpayer for a taxable year beginning in the 
calendar year in which such individuals taxable year 
begins— 
‘‘(A) no credit shall be allowed under sub-
section (a) to such individual for such individ-
ual’s taxable year, and 
‘‘(B) qualified tuition and related expenses 
paid by such individual during such individual’s 
taxable year shall be treated for purposes of 
this section as paid by such other taxpayer. 
‘‘(4) 
TREATMENT
OF
CERTAIN
PREPAY-
MENTS.—If qualified tuition and related expenses 
are paid by the taxpayer during a taxable year for 
an academic period which begins during the first 3 
months following such taxable year, such academic 
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period shall be treated for purposes of this section 
as beginning during such taxable year. 
‘‘(5) DENIAL OF DOUBLE BENEFIT.—No credit 
shall be allowed under this section for any amount 
for which a deduction is allowed under any other 
provision of this chapter. 
‘‘(6) NO
CREDIT
FOR
MARRIED
INDIVIDUALS 
FILING SEPARATE RETURNS.—If the taxpayer is a 
married individual (within the meaning of section 
7703), this section shall apply only if the taxpayer 
and the taxpayer’s spouse file a joint return for the 
taxable year. 
‘‘(7) NONRESIDENT ALIENS.—If the taxpayer is 
a nonresident alien individual for any portion of the 
taxable year, this section shall apply only if such in-
dividual is treated as a resident alien of the United 
States for purposes of this chapter by reason of an 
election under subsection (g) or (h) of section 6013. 
‘‘(g) INFLATION ADJUSTMENT.— 
‘‘(1) IN GENERAL.—In the case of a taxable 
year beginning after 2018, the $2,000 amount in 
subsection (a)(1), the $1,500 amount in subsection 
(b), and the $43,000 amount in subsection 
(c)(1)(A)(ii) shall each be increased by an amount 
equal to— 
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‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(c)(2)(A) for the calendar 
year in which the taxable year begins, deter-
mined by substituting ‘calendar year 2017’ for 
‘calendar year 2012’ in clause (ii) thereof. 
‘‘(2) ROUNDING.—If any amount as adjusted 
under paragraph (1) is not a multiple of $100 
($1,000 in the case of the amount in subsection 
(c)(1)(A)(ii)), such amount shall be rounded to the 
next lowest multiple of $100 ($1,000 in the case of 
the amount in subsection (c)(1)(A)(ii)). 
‘‘(h) REGULATIONS.—The Secretary may prescribe 
such regulations or other guidance as may be necessary 
or appropriate to carry out this section, including regula-
tions providing for a recapture of the credit allowed under 
this section in cases where there is a refund in a subse-
quent taxable year of any amount which was taken into 
account in determining the amount of such credit.’’. 
(b) REQUIREMENT TO REPORT TUITION PAID RATH-
ER THAN TUITION BILLED.—Section 6050S(b)(2)(B)(i) 
is amended by striking ‘‘or the aggregate amount billed’’. 
(c) CONFORMING AMENDMENTS.— 
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(1) Section 72(t)(7)(B) of such Code is amend-
ed by striking ‘‘section 25A(g)(2)’’ and inserting 
‘‘section 25A(f)(2)’’. 
(2) Section 529(c)(3)(B)(v)(I) of such Code is 
amended by striking ‘‘section 25A(g)(2)’’ and insert-
ing ‘‘section 25A(f)(2)’’. 
(3) Section 529(e)(3)(B)(i) of such Code is 
amended by striking ‘‘section 25A(b)(3)’’ and insert-
ing ‘‘section 25A(d)’’. 
(4) Section 530(d)(2)(C) of such Code is 
amended— 
(A) by striking ‘‘section 25A(g)(2)’’ in 
clause (i)(I) and inserting ‘‘section 25A(f)(2)’’, 
and 
(B) by striking ‘‘HOPE
AND
LIFETIME 
LEARNING CREDITS’’ in the heading and insert-
ing ‘‘AMERICAN OPPORTUNITY TAX CREDIT’’. 
(5) Section 530(d)(4)(B)(iii) of such Code is 
amended by striking ‘‘section 25A(g)(2)’’ and insert-
ing ‘‘section 25A(d)(4)(B)’’. 
(6) Section 6050S(e) of such Code is amended 
by striking ‘‘subsection (g)(2)’’ and inserting ‘‘sub-
section (f)(2)’’. 
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(7) Section 6211(b)(4)(A) of such Code is 
amended by striking ‘‘subsection (i)(6)’’ and insert-
ing ‘‘subsection (b)’’. 
(8) Section 6213(g)(2)(J) of such Code is 
amended by striking ‘‘TIN required under section 
25A(g)(1)’’ and inserting ‘‘TIN, and employer iden-
tification 
number, 
required 
under 
section 
25A(f)(1)’’. 
(9) Section 1004(c) of division B of the Amer-
ican Recovery and Reinvestment Tax Act of 2009 is 
amended— 
(A) in paragraph (1)— 
(i) by striking ‘‘section 25A(i)(6)’’ 
each place it appears and inserting ‘‘sec-
tion 25A(b)’’, and 
(ii) by striking ‘‘with respect to tax-
able years beginning after 2008 and before 
2018’’ each place it appears and inserting 
‘‘with respect to each taxable year’’, 
(B) in paragraph (2), by striking ‘‘Section 
25A(i)(6)’’ and inserting ‘‘Section 25A(b)’’, and 
(C) in paragraph (3)(C), by striking ‘‘sub-
section (i)(6)’’ and inserting ‘‘subsection (b)’’. 
(10) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 of the Internal Rev-
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enue Code of 1986 is amended by striking the item 
relating to section 25A and inserting the following 
new item: 
‘‘Sec. 25A. American opportunity tax credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1202. EXPANSION OF PELL GRANT EXCLUSION FROM 
GROSS INCOME. 
(a) IN GENERAL.—Paragraph (1) of section 117(b) 
of the Internal Revenue Code of 1986 is amended— 
(1) by striking the period at the end and insert-
ing ‘‘, or’’, 
(2) by striking ‘‘received by an individual as a 
scholarship’’ and inserting the following: ‘‘received 
by an individual— 
‘‘(A) as a scholarship’’, and 
(3) by adding at the end the following new sub-
paragraph: 
‘‘(B) as a Federal Pell Grant under section 
401 of the Higher Education Act of 1965 (20 
U.S.C. 1070a).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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SEC. 1203. REPEAL OF EXCLUSION OF INCOME FROM 
UNITED STATES SAVINGS BONDS USED TO 
PAY HIGHER EDUCATION TUITION AND FEES. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 is amended by striking section 135 (and by striking 
the item relating to such section in the table of sections 
for such part). 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1204. REPEAL OF DEDUCTION FOR INTEREST ON EDU-
CATION LOANS. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 is amended by striking section 221 (and by striking 
the item relating to such section in the table of sections 
for such part). 
(b) CONFORMING AMENDMENT.—Section 62(a) is 
amended by striking paragraph (17). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1205. REPEAL OF DEDUCTION FOR QUALIFIED TUI-
TION AND RELATED EXPENSES. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 is amended by striking section 222 (and by striking 
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the item relating to such section in the table of sections 
for such part). 
(b) CONFORMING AMENDMENT.—Section 62(a) is 
amended by striking paragraph (18). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2013. 
SEC. 1206. NO NEW CONTRIBUTIONS TO COVERDELL EDU-
CATION SAVINGS ACCOUNTS. 
(a) IN GENERAL.—Section 530(b)(1)(A) is amended 
to read as follows: 
‘‘(A) Except in the case of rollover con-
tributions, no contribution will be accepted after 
December 31, 2014.’’. 
(b) ROLLOVERS TO QUALIFIED TUITION PROGRAMS 
PERMITTED.—Section 530(d)(5) is amended by inserting 
‘‘, or into (by purchase or contribution) a qualified tuition 
program (as defined in section 529),’’ after ‘‘into another 
Coverdell education savings account’’. 
(c) EFFECTIVE DATES.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to contributions made after 
December 31, 2014. 
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(2) ROLLOVERS TO QUALIFIED TUITION PRO-
GRAMS.—The amendments made by subsection (b) 
shall apply to distributions after December 31, 
2014. 
SEC. 1207. REPEAL OF EXCLUSION FOR DISCHARGE OF 
STUDENT LOAN INDEBTEDNESS. 
(a) IN GENERAL.—Section 108 is amended by strik-
ing subsection (f). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 3121(a)(20) is amended by striking 
‘‘108(f)(4),’’. 
(2) Section 209(a)(17) of the Social Security 
Act is amended by striking ‘‘108(f)(4),’’. 
(3) Section 3231(e)(5) is amended by striking 
‘‘108(f)(4),’’. 
(4) Section 3306(b)(16) is amended by striking 
‘‘108(f)(4),’’. 
(5) Section 3401(a)(19) is amended by striking 
‘‘108(f)(4),’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts discharged after De-
cember 31, 2014. 
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SEC. 1208. REPEAL OF EXCLUSION FOR QUALIFIED TUI-
TION REDUCTIONS. 
(a) IN GENERAL.—Section 117 is amended by strik-
ing subsection (d). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 117(c)(1) is amended— 
(A) by striking ‘‘subsections (a) and (d)’’ 
and inserting ‘‘subsection (a)’’, and 
(B) by striking ‘‘or qualified tuition reduc-
tion’’. 
(2) Section 414(n)(3)(C) is amended by strik-
ing ‘‘117(d),’’. 
(3) Section 414(t)(2) is amended by striking 
‘‘117(d),’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1209. REPEAL OF EXCLUSION FOR EDUCATION ASSIST-
ANCE PROGRAMS. 
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 is amended by striking section 127 (and by striking 
the item relating to such section in the table of sections 
for such part). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 125(f)(1) is amended by striking 
‘‘127,’’. 
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(2) Section 132(j)(8) is amended by striking 
‘‘which are not excludable from gross income under 
section 127’’. 
(3) Section 137(c) is amended to read as fol-
lows: 
‘‘(c) ADOPTION ASSISTANCE PROGRAM.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, an adoption assistance program is a separate 
written plan of an employer for the exclusive benefit 
of such employer’s employees under which the em-
ployer provides such employees with adoption assist-
ance. Except as provided in paragraph (6), such pro-
gram must meet the requirements of paragraphs (2), 
(3), and (4). 
‘‘(2) ELIGIBILITY.—The program shall benefit 
employees who qualify under a classification set up 
by the employer and found by the Secretary not to 
be discriminatory in favor of employees who are 
highly compensated employees (within the meaning 
of section 414(q)) or their dependents. For purposes 
of this paragraph, there shall be excluded from con-
sideration employees not included in the program 
who are included in a unit of employees covered by 
an agreement which the Secretary of Labor finds to 
be a collective bargaining agreement between em-
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ployee representatives and one or more employers, if 
there is evidence that adoption assistance benefits 
were the subject of good faith bargaining between 
such employee representatives and such employer or 
employers. 
‘‘(3) PRINCIPAL SHAREHOLDERS OR OWNERS.— 
Not more than 5 percent of the amounts paid or in-
curred by the employer for adoption assistance dur-
ing the year may be provided for the class of individ-
uals who are shareholders or owners (or their 
spouses or dependents), each of whom (on any day 
of the year) owns more than 5 percent of the stock 
or of the capital or profits interest in the employer. 
‘‘(4) NOTIFICATION OF EMPLOYEES.—Reason-
able notification of the availability and terms of the 
program must be provided to eligible employees. 
‘‘(5) NO FUNDING REQUIRED.—A program re-
ferred to in paragraph (1) is not required to be 
funded. 
‘‘(6) CERTAIN FEDERAL PROGRAMS.—An adop-
tion reimbursement program operated under section 
1052 of title 10, United States Code (relating to 
armed forces) or section 514 of title 14, United 
States Code (relating to members of the Coast 
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Guard) shall be treated as an adoption assistance 
program for purposes of this section.’’. 
(4) Section 414(n)(3)(C) is amended by strik-
ing ‘‘127,’’. 
(5) Section 414(t)(2) is amended by striking 
‘‘127,’’. 
(6) Section 3121(a)(18) is amended by striking 
‘‘127,’’. 
(7) Section 209(a)(15) of the Social Security 
Act is amended by striking ‘‘127 or’’. 
(8) Section 3231(e) is amended by striking 
paragraph (6). 
(9) Section 3306(b)(13) is amended by striking 
‘‘127,’’. 
(10) Section 3401(a)(18) is amended by strik-
ing ‘‘127,’’. 
(11) Section 6039D(d)(1) is amended by strik-
ing ‘‘127,’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to amounts paid or incurred after 
December 31, 2014. 
SEC. 1210. REPEAL OF EXCEPTION TO 10-PERCENT PEN-
ALTY FOR HIGHER EDUCATION EXPENSES. 
(a) IN GENERAL.—Section 72(t)(2) is amended by 
striking subparagraph (E). 
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(b) CONFORMING AMENDMENT.—Section 72(t) is 
amended by striking paragraph (7). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to distributions after December 31, 
2014. 
Subtitle D—Repeal of Certain 
Credits for Individuals 
SEC. 1301. REPEAL OF DEPENDENT CARE CREDIT. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 is amended by striking section 21 
(and by striking the item relating to such section in the 
table of sections for such subpart). 
(b) CONFORMING AMENDMENTS.— 
(1)(A) Section 129(a)(2) is amended by striking 
subparagraph (C). 
(B) Section 129(e) is amended by adding at the 
end the following new paragraph: 
‘‘(10) MARITAL STATUS.—Rules similar to the 
rules of subsections (a) and (b) of section 7703 shall 
apply for purposes of this section.’’. 
(2) Section 129(e)(1) is amended to read as fol-
lows: 
‘‘(1) DEPENDENT CARE ASSISTANCE.— 
‘‘(A) IN GENERAL.—The term ‘dependent 
care assistance’ means employment-related ex-
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penses and the provision of services which con-
stitute employment-related expenses. 
‘‘(B) 
EMPLOYMENT-RELATED
EX-
PENSES.—The term ‘employment-related ex-
penses’ means amounts paid for the following 
expenses, but only if such expenses are incurred 
to enable the employee to be gainfully employed 
for any period for which there are 1 or more 
qualifying individuals with respect to the em-
ployee: 
‘‘(i) expenses for household services, 
and 
‘‘(ii) expenses for the care of a quali-
fying individual. 
Such term shall not include any amount paid 
for services outside the employee’s household at 
a camp where the qualifying individual stays 
overnight. 
‘‘(C) 
EXCEPTION.—Employment-related 
expenses described in subparagraph (A) which 
are incurred for services outside the employee’s 
household shall be taken into account only if in-
curred for the care of— 
‘‘(i) a qualifying individual described 
in subparagraph (D)(i), or 
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‘‘(ii) a qualifying individual (not de-
scribed in subparagraph (D)(i)) who regu-
larly spends at least 8 hours each day in 
the employee’s household. 
‘‘(D) QUALIFYING INDIVIDUAL.—The term 
‘qualifying individual’ means— 
‘‘(i) a dependent of the taxpayer (as 
defined in section 7705(a)(1)) who has not 
attained age 13, 
‘‘(ii) a dependent of the taxpayer (as 
defined in section 7705, determined with-
out regard to subsections (b)(1), (b)(2), 
and (d)(1)(B)) who is physically or men-
tally incapable of caring for himself or her-
self and who has the same principal place 
of abode as the taxpayer for more than 
one-half of such taxable year, or 
‘‘(iii) the spouse of the taxpayer, if 
the spouse is physically or mentally incapa-
ble of caring for himself or herself and who 
has the same principal place of abode as 
the taxpayer for more than one-half of 
such taxable year. 
‘‘(E) DEPENDENT CARE CENTERS.—Em-
ployment-related expenses described in subpara-
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graph (A) which are incurred for services pro-
vided outside the employee’s household by a de-
pendent care center shall be taken into account 
only if— 
‘‘(i) such center complies with all ap-
plicable laws and regulations of a State or 
unit of local government, and 
‘‘(ii) the requirements of subpara-
graph (B) are met. 
‘‘(F) DEPENDENT
CARE
CENTER
DE-
FINED.—For purposes of this paragraph, the 
term ‘dependent care center’ means any facility 
which— 
‘‘(i) provides care for more than six 
individuals (other than individuals who re-
side at the facility), and 
‘‘(ii) receives a fee, payment, or grant 
for providing services for any of the indi-
viduals (regardless of whether such facility 
is operated for profit). 
‘‘(G) PLACE OF ABODE.—For purposes of 
this paragraph, an individual shall not be treat-
ed as having the same principal place of abode 
as the taxpayer if at any time during the tax-
able year of the taxpayer the relationship be-
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tween the individual and the taxpayer is in vio-
lation of local law. 
‘‘(H) SPECIAL DEPENDENCY TEST IN CASE 
OF DIVORCED PARENTS, ETC..—If— 
‘‘(i) section 7705(e) applies to any 
child with respect to any calendar year, 
and 
‘‘(ii) such child is under the age of 13 
or is physically or mentally incapable of 
caring for himself, in the case of any tax-
able year beginning in such calendar year, 
such child shall be treated as a qualifying indi-
vidual described in clause (i) or (ii) of subpara-
graph (D) (whichever is appropriate) with re-
spect to the custodial parent (as defined in sec-
tion 7705(e)(4)(A)), and shall not be treated as 
a qualifying individual with respect to the non-
custodial parent.’’. 
(3) Section 6213(g)(2)(L) is amended by strik-
ing ‘‘21,’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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SEC. 1302. REPEAL OF CREDIT FOR ADOPTION EXPENSES. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 is amended by striking section 23 
(and by striking the item relating to such section in the 
table of sections for such subpart). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 137 is amended by striking sub-
sections (d) and (e). 
(2) Subsections (d) and (e) of section 23 (prior 
to being stricken by subsection (a)) are each moved 
to section 137 (after amendment by paragraph (1)) 
and inserted after subsection (c) as new subsections 
(d) and (e), respectively. 
(3) Section 137(d)(1)(D), as amended by para-
graphs (1) and (2), is amended by inserting ‘‘(deter-
mined without regard to reimbursements under this 
section)’’ before the period at the end. 
(4) Section 137(e), as amended by paragraphs 
(1) and (2), is amended by striking ‘‘(as defined in 
section 217(h)(3))’’ and inserting ‘‘(or any posses-
sion of the United States)’’. 
(5) Section 137 is amended by redesignating 
subsection (f) as subsection (h), and by inserting be-
fore subsection (h) (as so redesignated) the following 
new subsections: 
‘‘(f) FILING REQUIREMENTS.— 
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‘‘(1) MARRIED COUPLES MUST FILE JOINT RE-
TURN.— 
‘‘(A) IN
GENERAL.—If the taxpayer is 
married at the close of the taxable year, sub-
section (a) shall apply to the taxpayer only if 
the taxpayer and the taxpayer’s spouse file a 
joint return for the taxable year. 
‘‘(B) MARITAL STATUS.—Rules similar to 
the rules of subsections (a) and (b) of section 
7703 shall apply for purposes of this section. 
‘‘(2) TAXPAYER MUST INCLUDE TIN.— 
‘‘(A) IN
GENERAL.—Subsection (a) shall 
apply with respect to any child only if the tax-
payer includes (if known) the name, age, and 
TIN of such child on the return of tax for the 
taxable year. 
‘‘(B) OTHER
METHODS.—The Secretary 
may, in lieu of the information referred to in 
subparagraph (A), require other information 
meeting the purposes of subparagraph (A), in-
cluding identification of an agent assisting with 
the adoption. 
‘‘(g) BASIS ADJUSTMENTS.—For purposes of this 
subtitle, if the amount of any expenditure with respect to 
any property is excluded from gross income under this sec-
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tion, the increase in the basis of such property which 
would (but for this subsection) result from such expendi-
ture shall be reduced by the amount of such expenditure 
which is so excluded.’’. 
(6) Section 1016(a)(26) is amended by striking 
‘‘sections 23(g) and 137(e)’’ and inserting ‘‘section 
137(g)’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to amounts paid or incurred 
after December 31, 2014. 
(2) SPECIAL NEEDS ADOPTIONS.—For purposes 
of paragraph (1), any amount treated as paid by the 
taxpayer under section 23(a)(3) of the Internal Rev-
enue Code of 1986 (as in effect before its repeal by 
subsection (a)) shall be treated as paid on the date 
that the adoption referred to in such section be-
comes final. 
SEC. 1303. REPEAL OF CREDIT FOR NONBUSINESS ENERGY 
PROPERTY. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 is amended by striking section 25C 
(and by striking the item relating to such section in the 
table of sections of such subpart). 
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(b) CONFORMING AMENDMENT.—Section 1016(a) is 
amended by striking paragraph (33). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after 
December 31, 2013. 
SEC. 1304. REPEAL OF CREDIT FOR RESIDENTIAL ENERGY 
EFFICIENT PROPERTY. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 is amended by striking section 25D 
(and by striking the item relating to such section in the 
table of sections for such subpart). 
(b) CONFORMING AMENDMENT.—Section 1016(a) is 
amended by striking paragraph (34). 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to property placed in service after 
December 31, 2014. 
SEC. 1305. REPEAL OF CREDIT FOR QUALIFIED ELECTRIC 
VEHICLES. 
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 is amended by striking section 30 
(and by striking the item relating to such section in the 
table of sections of such subpart). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 1016(a) is amended by striking 
paragraph (25). 
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(and by striking the item relating to such section in the 
table of sections of such subpart). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 26(b)(2) is amended by striking 
subparagraph (W). 
(2) Section 1400C(e) is amended by striking 
paragraph (4). 
(3) Section 6211(b)(4)(A) is amended by strik-
ing ‘‘36,’’. 
(4) Section 6213(g)(2) is amended by striking 
subparagraphs (O) and (P). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to residences purchased after June 
30, 2011. 
Subtitle E—Deductions, Exclusions, 
and Certain Other Provisions 
SEC. 1401. EXCLUSION OF GAIN FROM SALE OF A PRIN-
CIPAL RESIDENCE. 
(a) REQUIREMENT THAT RESIDENCE BE PRINCIPAL 
RESIDENCE FOR 5 YEARS DURING 8-YEAR PERIOD.— 
Subsection (a) of section 121 is amended— 
(1) by striking ‘‘5-year period’’ and inserting 
‘‘8-year period’’, and 
(2) by striking ‘‘2 years’’ and inserting ‘‘5 
years’’. 
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(b) APPLICATION TO ONLY 1 SALE OR EXCHANGE 
EVERY 5 YEARS.—Paragraph (3) of section 121(b) is 
amended to read as follows: 
‘‘(3) APPLICATION
TO
ONLY
SALE
OR
EX-
CHANGE EVERY 5 YEARS.—Subsection (a) shall not 
apply to any sale or exchange by the taxpayer if, 
during the 5-year period ending on the date of such 
sale or exchange, there was any other sale or ex-
change by the taxpayer to which subsection (a) ap-
plied.’’. 
(c) PHASEOUT BASED
ON MODIFIED ADJUSTED 
GROSS INCOME.—Section 121 is amended by adding at 
the end the following new subsection: 
‘‘(h) PHASEOUT BASED ON MODIFIED ADJUSTED 
GROSS INCOME.— 
‘‘(1) IN
GENERAL.—If the modified adjusted 
gross income of the taxpayer for the taxable year ex-
ceeds $250,000 (twice such amount in the case of a 
joint return), the amount which would (but for this 
subsection) be excluded from gross income under 
subsection (a) for such taxable year shall be reduced 
(but not below zero) by the amount of such excess. 
‘‘(2) MODIFIED
ADJUSTED
GROSS
INCOME.— 
For purposes of this subsection, the term ‘modified 
adjusted gross income’ has the meaning given such 
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term by section 2 determined after the application of 
this section but without regard to this subsection.’’. 
(d) CONFORMING AMENDMENTS.— 
(1) The last paragraph of section 121(b) (relat-
ing to exclusion of gain allocated to nonqualified 
use) is redesignated as paragraph (5). 
(2) The following provisions of section 121 are 
each amended by striking ‘‘5-year period’’ each place 
it appears therein and inserting ‘‘8-year period’’: 
(A) Subsection (b)(5)(C)(ii)(I) (as redesig-
nated by paragraph (1)). 
(B) Subsection (c)(1)(B)(i)(I). 
(C) Subsection (d)(7)(B). 
(D) Subparagraphs (A) and (B) of sub-
section (d)(9). 
(E) Subsection (d)(10) 
(F) Subsection (d)(12)(A). 
(3) Section 121(c)(1)(B)(ii) is amended by 
striking ‘‘2 years’’ and inserting ‘‘5 years’’: 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales and exchanges after De-
cember 31, 2014. 
SEC. 1402. MORTGAGE INTEREST. 
(a) MODIFICATION OF LIMITATIONS.— 
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(1) IN
GENERAL.—Paragraph (3) of section 
163(h) is amended to read as follows: 
‘‘(3) QUALIFIED
RESIDENCE
INTEREST.—For 
purposes of this subsection— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
residence interest’ means any interest which is 
paid or accrued during the taxable year on in-
debtedness which— 
‘‘(i) is incurred in acquiring, con-
structing, or substantially improving any 
qualified residence (determined as of the 
time the interest is accrued) of the tax-
payer, and 
‘‘(ii) is secured by such residence. 
Such term also includes interest on any indebt-
edness secured by such residence resulting from 
the refinancing of indebtedness meeting the re-
quirements of the preceding sentence (or this 
sentence); but only to the extent the amount of 
the indebtedness resulting from such refi-
nancing does not exceed the amount of the refi-
nanced indebtedness. 
‘‘(B) LIMITATION.— 
‘‘(i) IN
GENERAL.—The aggregate 
amount of indebtedness taken into account 
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under subparagraph (A) for any period 
shall not exceed $500,000 (half of such 
amount in the case of a married individual 
filing a separate return). 
‘‘(ii) PHASE-IN OF DECREASED LIMI-
TATION.—For purposes of applying clause 
(i) with respect to any indebtedness in-
curred during a calendar year after 2014 
and before 2018, the $500,000 amount in 
clause (i) shall be increased by the phase- 
in amount determined in accordance with 
the following table: 
‘‘In the case of indebtedness incurred during: 
The phase-in amount is: 
2015 ..........................................................................
$375,000 
2016 ..........................................................................
$250,000 
2017 ..........................................................................
$125,000 
‘‘(iii) TREATMENT OF REFINANCINGS 
OF
INDEBTEDNESS
INCURRED
DURING 
PHASE-IN PERIOD.—In the case of any in-
debtedness which is incurred to refinance 
indebtedness to which clause (ii) applies 
(or to which this clause applies), such refi-
nanced indebtedness shall be treated for 
purposes of clause (ii) as incurred on the 
date that the original indebtedness was in-
curred to the extent the amount of the in-
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debtedness resulting from such refinancing 
does not exceed the amount of the refi-
nanced indebtedness. 
‘‘(C) TREATMENT OF INDEBTEDNESS IN-
CURRED BEFORE JANUARY 1, 2015.— 
‘‘(i) IN GENERAL.—In the case of any 
pre-January 1, 2015, indebtedness, this 
paragraph shall apply as in effect imme-
diately before the enactment of the Tax 
Reform Act of 2014. 
‘‘(ii) REDUCTION IN DOLLAR LIMITA-
TION.—The limitation of subparagraph (B) 
(after application of clause (ii) thereof) 
shall be reduced (but not below zero) by 
the aggregate amount of outstanding pre- 
January 1, 2015, indebtedness of the tax-
payer with respect to which interest is al-
lowable as a deduction by reason of this 
subparagraph. 
‘‘(iii) PRE-JANUARY 1, 2015, INDEBT-
EDNESS.—For purposes of this subpara-
graph, the term ‘pre-January 1, 2015, in-
debtedness’ means— 
‘‘(I) any indebtedness incurred 
before January 1, 2015, and 
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‘‘(II) any indebtedness incurred 
on or after such date to refinance in-
debtedness described in subclause (I) 
(or refinanced indebtedness meeting 
the requirements of this subclause) to 
the extent the amount of the indebt-
edness resulting from such refinancing 
does not exceed the amount of the re-
financed indebtedness. 
‘‘(D) LIMITATION
ON
PERIOD
OF
REFI-
NANCING.—Subparagraphs 
(B)(iii) 
and 
(C)(iii)(II) shall not apply to any indebtedness 
after— 
‘‘(i) the expiration of the term of the 
original indebtedness, or 
‘‘(ii) if the principal of such original 
indebtedness is not amortized over its 
term, the expiration of the term of the 1st 
refinancing of such indebtedness (or if ear-
lier, the date which is 30 years after the 
date of such 1st refinancing). 
‘‘(E) COORDINATION
WITH
CERTAIN
EX-
CLUSIONS.—The amount otherwise treated as 
qualified residence interest (determined without 
regard to this subparagraph) with respect to 
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any residence of the taxpayer for any taxable 
year shall be reduced by the sum of the 
amounts excludable from the gross income of 
such taxpayer under sections 107 and 119 with 
respect to such residence.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Section 108(h)(2) is amended to read 
as follows: 
‘‘(2) QUALIFIED
PRINCIPAL
RESIDENCE
IN-
DEBTEDNESS.—For purposes of this section, the 
term ‘qualified principal residence indebtedness’ 
means indebtedness described in section 163(h)(3) 
applied without regard to clauses (ii) and (iii) of 
subparagraph (B) thereof and by substituting 
‘$2,000,000’ for ‘$500,000’ in subparagraph (B)(i) 
thereof.’’. 
(B) Section 163(h) is amended— 
(i) by striking subparagraph (E) in 
paragraph (3), 
(ii) by striking subparagraphs (E) and 
(F) in paragraph (4), and 
(iii) by striking paragraph (5). 
(C) Section 265(a)(6) is amended— 
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(i) by striking ‘‘an amount as—’’ and 
all that follows and inserting ‘‘an amount 
as a military housing allowance.’’, and 
(ii) by striking ‘‘PARSONAGE AND’’ in 
the heading thereof. 
(b) 
MODIFICATION
OF
REPORTING
REQUIRE-
MENTS.— 
(1) INFORMATION RETURN REQUIREMENTS.— 
Paragraph (2) of section 6050H(b) is amended by 
striking ‘‘and’’ at the end of subparagraph (C), by 
redesignating subparagraph (D) as subparagraph 
(F) and by inserting after subparagraph (C) the fol-
lowing new subparagraphs: 
‘‘(D) the amount of outstanding principal 
on the mortgage as of the beginning of such 
calendar year, 
‘‘(E) the date of the origination of the 
mortgage, and’’. 
(2) STATEMENTS TO INDIVIDUALS.—Paragraph 
(2) of section 6050H(d) is amended by striking 
‘‘subsection (b)(2)(C)’’ and inserting ‘‘subpara-
graphs (C), (D), and (E) of subsection (b)(2)’’. 
(c) EFFECTIVE DATES.— 
(1) MODIFICATION OF LIMITATIONS.— 
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(A) IN GENERAL.—The amendments made 
by subsection (a) shall apply to interest paid or 
accrued in taxable years beginning after De-
cember 31, 2014, with respect to indebtedness 
incurred before, on, or after such date. 
(B) TREATMENT OF GRANDFATHERED IN-
DEBTEDNESS.—For application of the amend-
ments made by subsection (a) to grandfathered 
indebtedness, see section 163(h)(3)(C) of the 
Internal Revenue Code of 1986 as amended by 
this section. 
(2) MODIFICATION
OF
REPORTING
REQUIRE-
MENTS.—The amendments made by subsection (b) 
shall apply to returns and statements for calendar 
years after December 31, 2014. 
SEC. 1403. CHARITABLE CONTRIBUTIONS. 
(a) 2 PERCENT FLOOR ON CHARITABLE DEDUCTION 
FOR INDIVIDUALS.—Paragraph (3) of section 170(b) is 
amended to read as follows: 
‘‘(3) 2 PERCENT FLOOR ON CHARITABLE DE-
DUCTION FOR INDIVIDUALS.—The amount of chari-
table contributions taken into account under this 
section as made by any individual during a taxable 
year (determined without regard to subsection (d)) 
shall be reduced by 2 percent of the taxpayer’s con-
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tribution base for such taxable year. Such reduction 
shall apply— 
‘‘(A) first, to charitable contributions to 
which paragraph (1)(B) applies to the extent 
thereof, 
‘‘(B) second, to charitable contributions to 
which paragraph (1)(C) applies to the extent 
thereof, and 
‘‘(C) third, to charitable contributions to 
which paragraph (1)(A) applies to the extent 
thereof.’’. 
(b) EXTENSION OF TIME FOR MAKING CHARITABLE 
CONTRIBUTIONS.—Subsection (a) of section 170 is 
amended by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting after 
paragraph (1) the following new paragraph: 
‘‘(2) TREATMENT OF CHARITABLE CONTRIBU-
TIONS MADE BY INDIVIDUALS BEFORE DUE DATE OF 
RETURN.—If any charitable contribution is made by 
an individual after the close of a taxable year but 
not later than the due date (determined without re-
gard to extensions) for the return of tax for such 
taxable year, then the taxpayer may elect to treat 
such charitable contribution as made in such taxable 
year. Such election may be made only at the time of 
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the filing of such return of tax and shall be signified 
in such manner as the Secretary may provide.’’. 
(c) DEDUCTION FOR CONTRIBUTIONS OF PROPERTY 
GENERALLY LIMITED TO ADJUSTED BASIS.— 
(1) IN
GENERAL.—Subsection (e) of section 
170 is amended— 
(A) by striking paragraphs (1) and (6), 
(B) by redesignating paragraphs (2), (3), 
(4), and (5) as paragraphs (3), (4), (5), and 
(6), respectively, and 
(C) by inserting before paragraph (3) (as 
so redesignated) the following new paragraphs: 
‘‘(1) IN GENERAL.—Except in the case of prop-
erty to which paragraph (2) applies, the amount of 
any charitable contribution of property otherwise 
taken into account under this section shall be re-
duced by the amount of gain which would have been 
realized if the property contributed had been sold by 
the taxpayer for its fair market value (determined at 
the time of such contribution). 
‘‘(2) SPECIAL RULE FOR CERTAIN PROPERTY.— 
‘‘(A) IN GENERAL.—In the case of prop-
erty to which this paragraph applies, the 
amount of any charitable contribution of prop-
erty otherwise taken into account under this 
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section shall be reduced by the amount of gain 
which would not have been long-term capital 
gain if the property contributed had been sold 
by the taxpayer at its fair market value (deter-
mined at the time of such contribution). 
‘‘(B) PROPERTY
TO
WHICH
THIS
PARA-
GRAPH APPLIES.—This paragraph shall apply 
to— 
‘‘(i) any contribution of tangible per-
sonal property if the use of such property 
by the donee is related to the purpose or 
function constituting the basis for its ex-
emption under section 501 (or, in the case 
of a governmental unit, to any purpose or 
function described in subsection (c)), 
‘‘(ii) any qualified conservation con-
tribution (as defined in subsection (h)(1)), 
‘‘(iii) any qualified contribution (as 
defined in paragraph (4)(A)), 
‘‘(iv) any qualified research contribu-
tion (as defined in paragraph (5)(B)), and 
‘‘(v) any qualified appreciated stock 
(as defined in subsection (e)(6)). 
‘‘(C) SPECIAL RULES FOR DETERMINING 
LONG-TERM CAPITAL GAIN.— 
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‘‘(i) IN
GENERAL.—For purposes of 
applying this paragraph (other than in the 
case of gain to which section 1245(a), 
1250(a), 1252(a), or 1254(a) applies), 
property which is property used in the 
trade or business (as defined in section 
1231(b)) shall be treated as a capital 
asset. 
‘‘(ii) CONTRIBUTIONS OF STOCK IN S 
CORPORATIONS.—For purposes of applying 
this paragraph in the case of a charitable 
contribution of stock in an S corporation, 
rules similar to the rules of section 751 
shall apply in determining whether gain on 
such stock would have been long-term cap-
ital gain if such stock were sold by the tax-
payer.’’. 
(2) REPEAL OF SPECIAL RULES FOR FOOD AND 
BOOK
INVENTORY.—Paragraph 
(4) 
of 
section 
170(e), as redesignated by paragraph (1), is amend-
ed by striking subparagraphs (C) and (D) and by re-
designating subparagraph (E) as subparagraph (C). 
(3) CONFORMING AMENDMENTS.— 
(A) Section 170(e)(3), as redesignated by 
paragraph (1), is amended by striking ‘‘para-
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graph (1)’’ and inserting ‘‘paragraphs (1) and 
(2)’’. 
(B) Paragraphs (4) and (5) of section 
170(e), as redesignated by paragraph (1), are 
each amended by striking ‘‘paragraph (1)(A)’’ 
each place it appears and inserting ‘‘paragraph 
(2)(A)’’. 
(C) Section 170(e)(6), as redesignated by 
paragraph (1), is amended— 
(i) by striking all that precedes ‘‘for 
purposes of this paragraph’’ in subpara-
graph (B) and inserting the following: 
‘‘(6) QUALIFIED APPRECIATED STOCK.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B),’’, 
(ii) by redesignating subparagraph 
(C) as subparagraph (B), and 
(iii) by striking ‘‘in a contribution to 
which paragraph (1)(B)(ii) applies (deter-
mined without regard to this paragraph)’’ 
in subparagraph (B) as so redesignated. 
(d) MODIFICATION OF INCOME BASED CONTRIBU-
TION LIMITATIONS.— 
(1) IN GENERAL.—Section 170(b)(1) is amend-
ed— 
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(A) by striking ‘‘30 percent’’ in subpara-
graph (B)(i) and inserting ‘‘25 percent’’, and 
(B) by striking ‘‘50 percent’’ and inserting 
‘‘40 percent’’ in— 
(i) the flush matter at the end of sub-
paragraph (A), 
(ii) subparagraph (B)(ii), and 
(iii) clauses (i), (iv)(I), and (v) of sub-
paragraph (C) (as redesignated by para-
graph (2)). 
(2) REPEAL OF SPECIAL LIMITATIONS FOR CER-
TAIN CAPITAL GAIN PROPERTY.— 
(A) IN GENERAL.—Paragraph (1) of sec-
tion 170(b) is amended by striking subpara-
graphs (C) and (D) and by redesignating sub-
paragraphs (E), (F), and (G) as subparagraphs 
(C), (D), and (E), respectively. 
(B) CONFORMING AMENDMENTS.— 
(i) 
Section 
170(b)(1)(A)(vii) 
is 
amended by striking ‘‘subparagraph (F)’’ 
and inserting ‘‘subparagraph (D)’’ 
(ii) Section 170(b)(1)(B)(ii) is amend-
ed by striking ‘‘(determined without regard 
to subparagraph (C))’’. 
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(iii) Section 170(b)(1)(C)(iii), as re-
designated by paragraph (1), is amended 
by striking ‘‘subparagraph (A), (B), (C) or 
(D)’’ and inserting ‘‘subparagraph (A) or 
(B)’’. 
(iv) 
Section 
170(b)(2)(B)(i)(I) 
is 
amended 
by 
striking 
‘‘paragraph 
(1)(E)(v)’’ 
and 
inserting 
‘‘paragraph 
(1)(C)(v)’’. 
(v) Section 545(b)(2) is amended by 
striking ‘‘(D), and (E)’’ and inserting ‘‘and 
(C)’’. 
(e) QUALIFIED CONSERVATION CONTRIBUTIONS.— 
(1) RULES MADE PERMANENT.— 
(A) IN
GENERAL.—Subparagraph (C) of 
section 170(b)(1), as redesignated by subsection 
(d), is amended by striking clause (vi). 
(B) CORPORATE
FARMERS
AND
RANCH-
ERS.—Subparagraph (B) of section 170(b)(2) is 
amended by striking clause (iii). 
(2) TREATMENT
OF
GOLF
COURSE
EASE-
MENTS.—Subsection (h) of section 170 is amended 
by adding at the end the following new paragraph: 
‘‘(7) SPECIAL RULE WITH RESPECT TO GOLF 
COURSES.—An interest in real property shall not be 
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treated as a qualified real property interest for pur-
poses of this subsection if (at the time of the con-
tribution of such interest) such property is, or is 
reasonably expected to be, used as a golf course.’’. 
(3) CONFORMING AMENDMENTS.— 
(A) Section 170(b)(1)(C)(iv)(II), as redes-
ignated by subsection (d), is amended by strik-
ing ‘‘made after the date of the enactment of 
this subparagraph’’. 
(B) Section 170(b)(2)(B)(i)(II) is amended 
by striking ‘‘, in the case of contributions made 
after the date of the enactment of this subpara-
graph,’’. 
(f) REPEAL OF SPECIAL RULE FOR COLLEGE ATH-
LETIC EVENT SEATING RIGHTS.—Section 170 is amended 
by striking subsection (l). 
(g) REPEAL OF SPECIAL RULE TREATING DONEE 
INCOME FROM INTELLECTUAL PROPERTY AS AN ADDI-
TIONAL CHARITABLE CONTRIBUTION.— 
(1) IN GENERAL.—Section 170 is amended by 
striking subsection (m). 
(2) 
CONFORMING
AMENDMENTS.—Section 
6050L is amended— 
(A) by striking subsection (b) and redesig-
nating subsection (c) as subsection (b), and 
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(B) by striking ‘‘or (b)’’ in subsection (b) 
(as redesignated by subparagraph (A)). 
(h) EFFECTIVE DATE.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to contributions made in tax-
able years beginning after December 31, 2014. 
(2) 
QUALIFIED
CONSERVATION
CONTRIBU-
TIONS.—The amendments made by subsection (e) 
shall apply to contributions made in taxable years 
beginning after December 31, 2013. 
SEC. 1404. DENIAL OF DEDUCTION FOR EXPENSES ATTRIB-
UTABLE TO THE TRADE OR BUSINESS OF 
BEING AN EMPLOYEE. 
(a) IN GENERAL.—Part IX of subchapter B of chap-
ter 1 is amended by inserting after the item relating to 
section 262 the following new item: 
‘‘SEC. 262A. EXPENSES ATTRIBUTABLE TO BEING AN EM-
PLOYEE. 
‘‘(a) IN GENERAL.—Except as otherwise provided in 
this section, no deduction shall be allowed with respect to 
any trade or business of the taxpayer which consists of 
the performance of services by the taxpayer as an em-
ployee. 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1405. REPEAL OF DEDUCTION FOR TAXES NOT PAID 
OR ACCRUED IN A TRADE OR BUSINESS. 
(a) IN GENERAL.—Subsection (b) of section 164 is 
amended by striking paragraphs (5) and (6) and inserting 
the following new paragraph: 
‘‘(5) LIMITATION IN CASE OF INDIVIDUALS.—In 
the case of a taxpayer other than a corporation— 
‘‘(A) paragraphs (1) and (2) of subsection 
(a) shall only apply to taxes which are paid or 
accrued in carrying on a trade or business or 
an activity described in section 212, and 
‘‘(B) paragraph (3) of subsection (a) shall 
not apply to State and local taxes.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 164(a) is amended by striking para-
graph (6). 
(2)(A) Section 216(a) is amended by striking 
‘‘proportionate share of—’’ and all that follows and 
inserting ‘‘proportionate share of the interest allow-
able as a deduction to the corporation under section 
163 which is paid or incurred by the corporation on 
its indebtedness contracted— 
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‘‘(1) in the acquisition, construction, alteration, 
rehabilitation, or maintenance of the houses or 
apartment building, or 
‘‘(2) in the acquisition of the land on which the 
houses (or apartment building) are situated.’’. 
(B) Section 216(b)(3)(B)(i) is amended— 
(i) by striking ‘‘a share of such corpora-
tion’s real estate taxes described in subsection 
(a)(1) or’’ in subclause (I), and 
(ii) by striking ‘‘of such taxes, or of such 
interest,’’ in subclause (II) and inserting ‘‘of 
such interest’’. 
(C) Section 216(d) is amended by striking 
‘‘subsections (a)(1) and (a)(2)’’ and inserting ‘‘sub-
section (a)’’. 
(3) Section 274(f) is amended by striking 
‘‘TAXES,’’ in the heading thereof. 
(4) Section 280A(b) is amended by striking 
‘‘TAXES,’’ in the heading thereof. 
(5) Section 911(c)(3)(A)(ii) is amended— 
(A) by striking ‘‘and taxes’’, and 
(B) by striking ‘‘or 164’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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SEC. 1406. REPEAL OF DEDUCTION FOR PERSONAL CAS-
UALTY LOSSES. 
(a) IN GENERAL.—Subsection (c) of section 165 is 
amended by inserting ‘‘and’’ at the end of paragraph (1), 
by striking ‘‘; and’’ at the end of paragraph (2) and insert-
ing a period, and by striking paragraph (3). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 165 is amended by striking sub-
sections (h) and (k). 
(2) Subsection (i) of section 165 is amended— 
(A) in paragraph (1)— 
(i) by striking ‘‘(as defined by clause 
(ii) of subsection (h)(3)(C))’’, and 
(ii) by striking ‘‘(as defined by clause 
(i) of such subsection)’’, 
(B) by striking ‘‘(as defined by subsection 
(h)(3)(C)(i)’’ in paragraph (4), and 
(C) by adding at the end the following new 
paragraph: 
‘‘(5) FEDERALLY
DECLARED
DISASTER.—For 
purposes of this subsection— 
‘‘(A) FEDERALLY DECLARED DISASTER.— 
The term ‘federally declared disaster’ means 
any disaster subsequently determined by the 
President of the United States to warrant as-
sistance by the Federal Government under the 
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Robert T. Stafford Disaster Relief and Emer-
gency Assistance Act. 
‘‘(B) DISASTER AREA.—The term ‘disaster 
area’ means the area so determined to warrant 
such assistance.’’. 
(3)(A) Section 165(l)(1) is amended by striking 
‘‘a loss described in subsection (c)(3)’’ and inserting 
‘‘an ordinary loss described in subsection (c)(2)’’. 
(B) Section 165(l) is amended— 
(i) by striking paragraph (5), 
(ii) by redesignating paragraphs (2), (3), 
and (4) as paragraphs (3), (4), and (5), respec-
tively, and 
(iii) by inserting after paragraph (1) the 
following new paragraph: 
‘‘(2) LIMITATIONS.— 
‘‘(A) DEPOSIT MAY NOT BE FEDERALLY 
INSURED.—No election may be made under 
paragraph (1) with respect to any loss on a de-
posit in a qualified financial institution if part 
or all of such deposit is insured under Federal 
law. 
‘‘(B) DOLLAR LIMITATION.—With respect 
to each financial institution, the aggregate 
amount of losses attributable to deposits in 
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such financial institution to which an election 
under paragraph (1) may be made by the tax-
payer for any taxable year shall not exceed 
$20,000 ($10,000 in the case of a separate re-
turn by a married individual). The limitation of 
the preceding sentence shall be reduced by the 
amount of any insurance proceeds under any 
State law which can reasonably be expected to 
be received with respect to losses on deposits in 
such institution.’’. 
(4) Section 172(b)(1)(F)(ii), prior to redesigna-
tion under title III, is amended— 
(A) by striking subclause (I) and by redes-
ignating subclauses (II) and (III) as subclauses 
(I) and (II), respectively, and 
(B) by striking ‘‘subsection (h)(3)(C)(i)’’ 
and inserting ‘‘section 165(i)(5)’’. 
(5) Section 172(d)(4)(C) is amended by strik-
ing ‘‘paragraph (2) or (3) of section 165(c)’’ and in-
serting ‘‘section 165(c)(2)’’. 
(6) Section 274(f) is amended by striking 
‘‘CASUALTY LOSSES,’’ in the heading thereof. 
(7) Section 280A(b) is amended by striking 
‘‘CASUALTY LOSSES,’’ in the heading thereof. 
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(8) Section 873(b), as amended by the pre-
ceding provisions of this Act, is amended by striking 
paragraph (1) and by redesignating paragraphs (2) 
and (3) as paragraphs (1) and (2), respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1407. LIMITATION ON WAGERING LOSSES. 
(a) IN GENERAL.—Section 165(d) is amended by 
adding at the end the following: ‘‘For purposes of the pre-
ceding sentence, the term ‘losses from wagering trans-
actions’ includes any deduction otherwise allowable under 
this chapter incurred in carrying on any wagering trans-
action.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1408. REPEAL OF DEDUCTION FOR TAX PREPARATION 
EXPENSES. 
(a) IN GENERAL.—Section 212 is amended by adding 
‘‘or’’ at the end of paragraph (1), by striking ‘‘; or’’ at 
the end of paragraph (2) and inserting a period, and by 
striking paragraph (3). 
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(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 1409. REPEAL OF DEDUCTION FOR MEDICAL EX-
PENSES. 
(a) IN GENERAL.—Part VII of subchapter B of chap-
ter 1 is amended by striking section 213 (and by striking 
the item relating to such section in the table of sections 
for such part). 
(b) CONFORMING AMENDMENTS.— 
(1)(A) Section 223 is amended by redesignating 
subsections (e), (f), (g), and (h) as subsections (f), 
(g), (h), and (i), respectively, and by inserting after 
subsection (d) the following new subsection: 
‘‘(e) MEDICAL CARE.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘medical care’ 
means amounts paid— 
‘‘(A) for the diagnosis, cure, mitigation, 
treatment, or prevention of disease, or for the 
purpose of affecting any structure or function 
of the body, 
‘‘(B) for transportation primarily for and 
essential to medical care referred to in subpara-
graph (A), 
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‘‘(C) for qualified long-term care services 
(as defined in section 7702B(c)), or 
‘‘(D) for insurance (including amounts 
paid as premiums under part B of title XVIII 
of the Social Security Act, relating to supple-
mentary medical insurance for the aged) cov-
ering medical care referred to in subparagraphs 
(A) and (B) or for any qualified long-term care 
insurance contract (as defined in section 
7702B(b)). 
In the case of a qualified long-term care insurance 
contract (as defined in section 7702B(b)), only eligi-
ble long-term care premiums (as defined in para-
graph (7)) shall be taken into account under sub-
paragraph (D). 
‘‘(2) AMOUNTS
PAID
FOR
CERTAIN
LODGING 
AWAY FROM HOME TREATED AS PAID FOR MEDICAL 
CARE.—Amounts paid for lodging (not lavish or ex-
travagant under the circumstances) while away from 
home primarily for and essential to medical care re-
ferred to in paragraph (1)(A) shall be treated as 
amounts paid for medical care if— 
‘‘(A) the medical care referred to in para-
graph (1)(A) is provided by a physician in a li-
censed hospital (or in a medical care facility 
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which is related to, or the equivalent of, a li-
censed hospital), and 
‘‘(B) there is no significant element of per-
sonal pleasure, recreation, or vacation in the 
travel away from home. 
The amount taken into account under the preceding 
sentence shall not exceed $50 for each night for each 
individual. 
‘‘(3) PHYSICIAN.—The term ‘physician’ has the 
meaning given to such term by section 1861(r) of 
the Social Security Act (42 U.S.C. 1395x(r)). 
‘‘(4) CONTRACTS COVERING OTHER THAN MED-
ICAL CARE.—In the case of an insurance contract 
under which amounts are payable for other than 
medical care referred to in subparagraphs (A), (B) 
and (C) of paragraph (1)— 
‘‘(A) no amount shall be treated as paid 
for insurance to which paragraph (1)(D) applies 
unless the charge for such insurance is either 
separately stated in the contract, or furnished 
to the policyholder by the insurance company in 
a separate statement, 
‘‘(B) the amount taken into account as the 
amount paid for such insurance shall not exceed 
such charge, and 
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‘‘(C) no amount shall be treated as paid 
for such insurance if the amount specified in 
the contract (or furnished to the policyholder by 
the insurance company in a separate statement) 
as the charge for such insurance is unreason-
ably large in relation to the total charges under 
the contract. 
‘‘(5) CERTAIN PRE-PAID CONTRACTS.—Subject 
to the limitations of paragraph (4), premiums paid 
during the taxable year by a taxpayer before he at-
tains the age of 65 for insurance covering medical 
care (within the meaning of subparagraphs (A), (B), 
and (C) of paragraph (1)) for the taxpayer, his 
spouse, or a dependent after the taxpayer attains the 
age of 65 shall be treated as expenses paid during 
the taxable year for insurance which constitutes 
medical care if premiums for such insurance are 
payable (on a level payment basis) under the con-
tract for a period of 10 years or more or until the 
year in which the taxpayer attains the age of 65 
(but in no case for a period of less than 5 years). 
‘‘(6) COSMETIC SURGERY.— 
‘‘(A) IN
GENERAL.—The term ‘medical 
care’ does not include cosmetic surgery or other 
similar procedures, unless the surgery or proce-
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asabaliauskas on DSK5VPTVN1PROD with BILLS
169 
dure is necessary to ameliorate a deformity 
arising from, or directly related to, a congenital 
abnormality, a personal injury resulting from 
an accident or trauma, or disfiguring disease. 
‘‘(B) COSMETIC SURGERY DEFINED .—For 
purposes of this paragraph, the term ‘cosmetic 
surgery’ means any procedure which is directed 
at improving the patient’s appearance and does 
not meaningfully promote the proper function 
of the body or prevent or treat illness or dis-
ease. 
‘‘(7) ELIGIBLE LONG-TERM CARE PREMIUMS.— 
‘‘(A) IN GENERAL.—For purposes of this 
section, the term ‘eligible long-term care pre-
miums’ means the amount paid during a tax-
able year for any qualified long-term care insur-
ance contract (as defined in section 7702B(b)) 
covering an individual, to the extent such 
amount does not exceed the limitation deter-
mined under the following table: 
‘‘In the case of an individual with an 
attained age before the close of the 
taxable year of: 
The limitation is: 
40 or less 
$200 
More than 40 but not more than 50 
$375 
More than 50 but not more than 60 
$750 
More than 60 but not more than 70 
$2,000 
More than 70 
$2,500 
‘‘(B) INDEXING.— 
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asabaliauskas on DSK5VPTVN1PROD with BILLS
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bonus plans maintained by the em-
ployer shall be treated as a single 
plan, and 
‘‘(II) trusts which are not quali-
fied trusts under section 401(a) and 
annuity contracts which do not satisfy 
the requirements of section 404(a)(2) 
shall not be taken into account. 
‘‘(iii) COMMUNITY PROPERTY LAWS.— 
The provisions of this subparagraph shall 
be applied without regard to community 
property laws. 
‘‘(iv) BALANCE
TO
CREDIT
OF
EM-
PLOYEE NOT TO INCLUDE AMOUNTS PAY-
ABLE UNDER QUALIFIED DOMESTIC RELA-
TIONS ORDER.—The balance to the credit 
of an employee shall not include any 
amount payable to an alternate payee 
under a qualified domestic relations order 
(within the meaning of section 414(p)). 
‘‘(v) TRANSFERS TO COST-OF-LIVING 
ARRANGEMENT
NOT
TREATED
AS
DIS-
TRIBUTION.—The balance to the credit of 
an employee under a defined contribution 
plan shall not include any amount trans-
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asabaliauskas on DSK5VPTVN1PROD with BILLS
235 
year with respect to such individual under section 
408A(c)(1)(A)(i).’’. 
(2) INDIVIDUAL RETIREMENT ANNUITIES.— 
(A) IN GENERAL.—Subparagraph (B) of 
section 408(b)(2) is amended to read as follows: 
‘‘(B) any amount paid as a premium on 
behalf of any individual for a taxable year 
would meet the requirements of subsection 
(a)(1) if it were paid as a contribution to an in-
dividual retirement account, and’’. 
(B) ENDOWMENT
CONTRACT
REQUIRE-
MENT.—The last sentence of section 408(b) is 
amended by striking ‘‘the dollar amount in ef-
fect under section 219(b)(1)(A)’’ and inserting 
‘‘the amounts described in paragraph (2)(B)’’. 
(b) CONFORMING AMENDMENTS.— 
(1) AMENDMENTS
RELATING
TO
DEDUCT-
IBILITY.— 
(A) Section 219(a) is amended by striking 
‘‘equal to the qualified retirement contributions 
of the individual’’ and inserting ‘‘equal to the 
amounts contributed on behalf of the individual 
to a plan described in section 501(c)(18)’’. 
(B) Section 219(b) is amended— 
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asabaliauskas on DSK5VPTVN1PROD with BILLS
671 
‘‘(I) the total cumulative value, 
determined at the time of contribu-
tion, of all money or other property 
contributed by the partner to the 
partnership with respect to such inter-
est as of such day, over 
‘‘(II) the total cumulative value, 
determined at the time of distribution, 
of all money or other property distrib-
uted by the partnership to the partner 
with respect to such interest as of 
such day. 
‘‘(iii) 
TREATMENT
OF
RELATED 
PARTY
BORROWINGS.—Any amount bor-
rowed directly or indirectly from the part-
nership or any other partner of the part-
nership or any person related to such other 
partner or such partnership shall not be 
taken into account under this subpara-
graph. For purposes of the preceding sen-
tence, a person shall be treated as related 
to another person if the relationship be-
tween such persons would be described in 
section 267(b) or 707(b) if such sections 
and section 267(f) were applied by sub-
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