(b) DEDUCTION ALLOWABLE WHETHER
OR
NOT 
TAXPAYER ITEMIZES OTHER DEDUCTIONS.—
(1) Subsection (b) of section 63 is amended by 
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(3) the deduction allowed by section 1203.’’. 
(2) Subsection (d) of section 63 is amended by 
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(3) the deduction allowed by section 1203.’’. 
(c) TREATMENT OF COLLECTIBLES.—
(1) IN GENERAL.—Section 1222 is amended by 
inserting after paragraph (11) the following new 
paragraph: 
‘‘(12) SPECIAL RULE FOR COLLECTIBLES.—
‘‘(A) IN GENERAL.—Any gain or loss from 
the sale or exchange of a collectible shall be 
treated as a short-term capital gain or loss (as 
the case may be), without regard to the period 
such asset was held. The preceding sentence 
shall apply only to the extent the gain or loss
is taken into account in computing taxable in-
come. 
‘‘(B) TREATMENT OF CERTAIN SALES OF 
INTERESTS IN PARTNERSHIPS, ETC.—For pur-
poses of subparagraph (A), any gain from the 
sale or exchange of an interest in a partnership, 
S corporation, or trust which is attributable to 
unrealized appreciation in the value of collect-
ibles held by such entity shall be treated as gain 
from the sale or exchange of a collectible. Rules 
similar to the rules of section 751(f) shall apply 
for purposes of the preceding sentence. 
‘‘(C) COLLECTIBLE.—For purposes of this 
paragraph, the term ‘collectible’ means any cap-
ital asset which is a collectible (as defined in 
section 408(m) without regard to paragraph (3) 
thereof).’’. 
(2) 
CHARITABLE
DEDUCTION
NOT
AF-
FECTED.—
(A) Paragraph (1) of section 170(e) is 
amended by adding at the end thereof the fol-
lowing new sentence: ‘‘For purposes of this 
paragraph, section 1222 shall be applied with-
out regard to paragraph (12) thereof (relating 
to special rule for collectibles).’’.
(B) Clause (iv) of section 170(b)(1)(C) is 
amended by inserting before the period at the 
end thereof the following: ‘‘and section 1222 
shall be applied without regard to paragraph 
(12) thereof (relating to special rule for collect-
ibles)’’. 
(d) TECHNICAL AND CONFORMING CHANGES.—
(1) Section 1 is amended by striking subsection 
(h). 
(2) Section 163(d)(4) is amended—
(A) by striking the last sentence of sub-
paragraph (B), and 
(B) by amending subparagraph (E) to read 
as follows: 
‘‘(E) COORDINATION WITH CAPITAL GAINS 
DEDUCTION.—The net capital gain taken into 
account under section 1203 for any taxable 
year shall be reduced (but not below zero) by 
the amount which the taxpayer takes into ac-
count as investment income under subpara-
graph (B)(iii) for such year.’’. 
(3) Paragraph (1) of section 170(e) is amended 
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘62 per-
cent (100 percent in the case of a corporation) of 
the amount of gain’’. 
(4) Subparagraph (B) of section 172(d)(2) is 
amended to read as follows: 
‘‘(B) the exclusion under section 1202 and 
the deduction under section 1203 shall not be 
allowed.’’. 
(5) The last sentence of section 453A(c)(3) is 
amended by striking all that follows ‘‘long-term cap-
ital gain,’’ and inserting ‘‘the maximum rate on net 
capital gain under section 1201 or the deduction 
under section 1203 (whichever is appropriate) shall 
be taken into account.’’. 
(6)(A) Section 641(c)(2)(A) is amended by 
striking ‘‘Except as provided in section 1(h), the’’ 
and inserting ‘‘The’’. 
(B) Section 641(c)(2)(C) is amended by insert-
ing after clause (iii) the following new clause: 
‘‘(iv) The deduction under section 
1203.’’. 
(7) Paragraph (4) of section 642(c) is amended 
to read as follows: 
‘‘(4) ADJUSTMENTS.—To the extent that the 
amount otherwise allowable as a deduction under 
this subsection consists of gain from the sale or ex-