or loss under section 1256(a)(3) shall be
treated as attributable to property held for
more than 18 months.
‘‘(6) COLLECTIBLES GAIN AND LOSS.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The terms ‘collectibles
gain’ and ‘collectibles loss’ mean gain or loss
(respectively) from the sale or exchange of a
collectible (as defined in section 408(m) without
regard to paragraph (3) thereof) which is a
capital asset held for more than 18 months but
only to the extent such gain is taken into ac-
count in computing gross income and such loss
is taken into account in computing taxable in-
come.
‘‘(B) PARTNERSHIPS, ETC.—For purposes
of subparagraph (A), any gain from the sale of
an interest in a partnership, S corporation, or
trust which is attributable to unrealized appre-
ciation in the value of collectibles shall be treat-
ed as gain from the sale or exchange of a col-
lectible. Rules similar to the rules of section
751 shall apply for purposes of the preceding
sentence.
‘‘(7) UNRECAPTURED SECTION 1250 GAIN.—For
purposes of this subsection—
‘‘(A) 
IN
GENERAL.—The 
term
‘unrecaptured section 1250 gain’ means the ex-
cess (if any) of—
‘‘(i) the amount of long-term capital
gain (not otherwise treated as ordinary in-
come) which would be treated as ordinary
income if—
‘‘(I) section 1250(b)(1) included
all depreciation and the applicable
percentage under section 1250(a)
were 100 percent, and
‘‘(II) only gain from property
held for more than 18 months were
taken into account, over
‘‘(ii) the excess (if any) of—
‘‘(I) the amount described in
paragraph (5)(A)(ii), over
‘‘(II) the amount described in
paragraph (5)(A)(i).
‘‘(B) LIMITATION WITH RESPECT TO SEC-
TION 1231 PROPERTY.—The amount described
in subparagraph (A)(i) from sales, exchanges,
and 
conversions 
described 
in 
section
1231(a)(3)(A) for any taxable year shall not ex-
ceed the net section 1231 gain (as defined in
section 1231(c)(3)) for such year.
‘‘(8) SECTION 1202 GAIN.—For purposes of this
subsection, the term ‘section 1202 gain’ means an
amount equal to the gain excluded from gross in-
come under section 1202(a).
‘‘(9) QUALIFIED 5-YEAR GAIN.—For purposes
of this subsection, the term ‘qualified 5-year gain’
means the amount of long-term capital gain which
would be computed for the taxable year if only gains
from the sale or exchange of property held by the
taxpayer for more than 5 years were taken into ac-
count. The determination under the preceding sen-
tence shall be made without regard to collectibles
gain, gain described in paragraph (7)(A)(i), and sec-
tion 1202 gain.
‘‘(10) COORDINATION
WITH
RECAPTURE
OF
NET ORDINARY LOSSES UNDER SECTION 1231.—If
any amount is treated as ordinary income under sec-
tion 1231(c), such amount shall be allocated among
the separate categories of net section 1231 gain (as
defined in section 1231(c)(3)) in such manner as the
Secretary may by forms or regulations prescribe.
‘‘(11) REGULATIONS.—The Secretary may pre-
scribe such regulations as are appropriate (including
regulations requiring reporting) to apply this sub-
section in the case of sales and exchanges by pass-
thru entities and of interests in such entities.
‘‘(12) PASS-THRU ENTITY DEFINED.—For pur-
poses of this subsection, the term ‘pass-thru entity’
means—
‘‘(A) a regulated investment company,
‘‘(B) a real estate investment trust,
‘‘(C) an S corporation,
‘‘(D) a partnership,
‘‘(E) an estate or trust,
‘‘(F) a common trust fund,
‘‘(G) a foreign investment company which
is described in section 1246(b)(1) and for which
an election is in effect under section 1247, and
‘‘(H) a qualified electing fund (as defined
in section 1295).
‘‘(13) SPECIAL
RULES
FOR
PERIODS
DURING
1997.—
‘‘(A) DETERMINATION
OF
PERCENT
RATE GAIN.—In applying paragraph (5)—
‘‘(i) the amount determined under
subclause (I) of paragraph (5)(A)(i) shall
include long-term capital gain (not other-
wise described in paragraph (5)(A)(i))
which is properly taken into account for
the portion of the taxable year before May
7, 1997,
‘‘(ii) the amounts determined under
subclause (I) of paragraph (5)(A)(ii) shall
include long-term capital loss (not other-
wise described in paragraph (5)(A)(ii))
which is properly taken into account for
the portion of the taxable year before May
7, 1997, and
‘‘(iii) clauses (i)(I) and (ii)(I) of para-
graph (5)(A) shall be applied by not taking
into account any gain and loss on property
held for more than 1 year but not more
than 18 months which is properly taken
into account for the portion of the taxable
year after May 6, 1997, and before July
29, 1997.
‘‘(B) OTHER SPECIAL RULES.—
‘‘(i) 
DETERMINATION
OF
UNRE-
CAPTURED SECTION 1250 GAIN NOT TO IN-
CLUDE
PRE-MAY
7, 
1997
GAIN.—The
amount 
determined 
under 
paragraph
(7)(A)(i) shall not include gain properly
taken into account for the portion of the
taxable year before May 7, 1997.
‘‘(ii) OTHER
TRANSITIONAL
RULES
FOR 18-MONTH HOLDING PERIOD.—Para-
graphs (6)(A) and (7)(A)(i)(II) shall be
applied by substituting ‘1 year’ for ‘18
months’ with respect to gain properly
taken into account for the portion of the
taxable year after May 6, 1997, and before
July 29, 1997.
‘‘(C) SPECIAL RULES FOR PASS-THRU EN-
TITIES.—In applying this paragraph with re-
spect to any pass-thru entity, the determination
of when gains and loss are properly taken into
account shall be made at the entity level.’’
(2) IN
GENERAL.—Paragraph (3) of section
55(b) of the 1986 Code is amended to read as fol-
lows:
‘‘(3) MAXIMUM RATE OF TAX ON NET CAPITAL
GAIN OF NONCORPORATE TAXPAYERS.—The amount
determined under the first sentence of paragraph
(1)(A)(i) shall not exceed the sum of—
‘‘(A) the amount determined under such
first sentence computed at the rates and in the
same manner as if this paragraph had not been
enacted on the taxable excess reduced by the
lesser of—
‘‘(i) the net capital gain, or
‘‘(ii) the sum of—
‘‘(I) the adjusted net capital
gain, plus
‘‘(II) the unrecaptured section
1250 gain, plus
‘‘(B) 10 percent of so much of the ad-
justed net capital gain (or, if less, taxable ex-
cess) as does not exceed the amount on which
a tax is determined under section 1(h)(1)(B),
plus
‘‘(C) 20 percent of the adjusted net capital
gain (or, if less, taxable excess) in excess of the
amount on which tax is determined under sub-
paragraph (B), plus
‘‘(D) 25 percent of the amount of taxable
excess in excess of the sum of the amounts on
which tax is determined under the preceding
subparagraphs of this paragraph.
In the case of taxable years beginning after Decem-
ber 31, 2000, rules similar to the rules of section
1(h)(2) shall apply for purposes of subparagraphs
(B) and (C). Terms used in this paragraph which
are also used in section 1(h) shall have the respec-
tive meanings given such terms by section 1(h) but
computed with the adjustments under this part.’’.
(3) Section 57(a)(7) of the 1986 Code is
amended by adding at the end the following new
sentence: ‘‘In the case of stock the holding period of
which begins after December 31, 2000 (determined
with the application of the last sentence of section
1(h)(2)(B)), the preceding sentence shall be applied
by substituting ‘28 percent’ for ‘42 percent’.’’.
(4) Paragraphs (11) and (12) of section 1223,
and section 1235(a), of the 1986 Code are each
amended by striking ‘‘1 year’’ each place it appears
and inserting ‘‘18 months’’.
(e) AMENDMENTS RELATED TO SECTION 312 OF
1997 ACT.—
(1) Section 121(c)(1) of the 1986 Code is
amended to read as follows:
‘‘(1) IN GENERAL.—In the case of a sale or ex-
change to which this subsection applies, the owner-
ship and use requirements of subsection (a), and
subsection (b)(3), shall not apply; but the dollar lim-
itation under paragraph (1) or (2) of subsection (b),
whichever is applicable, shall be equal to—
‘‘(A) the amount which bears the same
ratio to such limitation (determined without re-
gard to this paragraph) as
‘‘(B)(i) the shorter of—
‘‘(I) the aggregate periods, during the
5-year period ending on the date of such
sale or exchange, such property has been
owned and used by the taxpayer as the
taxpayer’s principal residence, or
‘‘(II) the period after the date of the
most recent prior sale or exchange by the
taxpayer to which subsection (a) applied
and before the date of such sale or ex-
change, bears to
‘‘(ii) 2 years.’’.
(2) Section 312(d)(2) of the 1997 Act (relating
to sales before date of enactment) is amended by in-
serting ‘‘on or’’ before ‘‘before’’ each place it ap-
pears in the text and heading.
(f) AMENDMENT RELATED TO SECTION 313 OF 1997
ACT.—Section 1045 of the 1986 Code is amended by add-
ing at the end the following new subsection:
‘‘(c) LIMITATION
ON APPLICATION
TO PARTNER-
SHIPS AND S CORPORATIONS.—Subsection (a) shall apply
to a partnership or S corporation for a taxable year only
if at all times during such taxable year all of the partners
in the partnership, or all of the shareholders of the S cor-
poration, are natural persons or estates.’’
SEC. 6. AMENDMENTS RELATED TO TITLE V OF 1997 ACT.
(a) AMENDMENTS RELATED TO SECTION 501 OF
1997 ACT.—
(1) Subsection (c) of section 2631 of the 1986
Code is amended by striking ‘‘an individual who
dies’’ and inserting ‘‘a generation-skipping trans-
fer’’.
(2) Subsection (f) of section 501 of the 1997
Act is amended by inserting ‘‘(other than the
amendment made by subsection (d))’’ after ‘‘this
section’’.
(b) AMENDMENTS RELATED TO SECTION 502 OF
1997 ACT.—
(1) Subsection (a) of section 2033A of the 1986
Code is amended to read as follows:
‘‘(a) EXCLUSION.—
‘‘(1) IN GENERAL.—In the case of an estate of
a decedent to which this section applies, the value of
the gross estate shall not include the lesser of—
‘‘(A) the adjusted value of the qualified
family-owned business interests of the decedent
otherwise includible in the estate, or
‘‘(B) the exclusion limitation with respect
to such estate.
‘‘(2) EXCLUSION LIMITATION.—
‘‘(A) IN GENERAL.—The exclusion limita-
tion with respect to any estate is the amount of
reduction in the tentative tax base with respect
to such estate which would be required in order
to reduce the tax imposed by section 2001(b)
(determined without regard to this section) by
an amount equal to the maximum credit equiva-
lent benefit.
‘‘(B) MAXIMUM CREDIT EQUIVALENT BEN-
EFIT.—For purposes of subparagraph (A), the
term ‘maximum credit equivalent benefit’ means
the excess of—
‘‘(i) the amount by which the ten-
tative tax imposed by section 2001(b) (de-
termined without regard to this section)
would be reduced if the tentative tax base
were reduced by $675,000, over
‘‘(ii) the amount by which the applica-
ble credit amount under section 2010(c)
with respect to such estate exceeds such
applicable credit amount in effect for
1998.