A bill to amend the Internal Revenue Code of 1986 to exclude from gross income capital gain from the disposition of certain urban property, Indian reservation property, or farm property which has been held for more than 5 years.

SECTION 1. EXCLUSION OF CAPITAL GAIN FROM CERTAIN INVESTMENTS WITHIN 
              URBAN AREAS AND INDIAN RESERVATIONS.

    (a) In General.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by adding at the end the following:

``SEC. 1203. 100 PERCENT EXCLUSION FOR CAPITAL GAIN FROM URBAN AND 
              INDIAN RESERVATION INVESTMENTS.

    ``(a) Exclusion.--Gross income shall not include qualified capital 
gain from the sale or exchange of any qualified area asset held for 
more than 5 years.
    ``(b) Qualified Area Asset.--For purposes of this section--
            ``(1) In general.--The term `qualified area asset' means--
                    ``(A) any qualified area business stock,
                    ``(B) any qualified area partnership interest, and
                    ``(C) any qualified area business property.
            ``(2) Qualified area business stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified area business 
                stock' means any stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer on original issue from the corporation 
                        solely in exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was a qualified area 
                        business (or, in the case of a new corporation, 
                        such corporation was being organized for 
                        purposes of being a qualified area business), 
                        and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as a qualified area 
                        business.
                    ``(B) Redemptions.--A rule similar to the rule of 
                section 1202(c)(3) shall apply for purposes of this 
                paragraph.
            ``(3) Qualified area partnership interest.--The term 
        `qualified area partnership interest' means any capital or 
        profits interest in a domestic partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                from the partnership solely in exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was a qualified area business (or, in 
                the case of a new partnership, such partnership was 
                being organized for purposes of being a qualified area 
                business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as a qualified area business.
        A rule similar to the rule of paragraph (2)(B) shall apply for 
        purposes of this paragraph.
            ``(4) Qualified area business property.--
                    ``(A) General rule.--
                            ``(i) In general.--The term `qualified area 
                        business property' means any property to which 
                        section 168 applies (or would apply but for 
                        section 179) if--
                                    ``(I) such property was acquired by 
                                the taxpayer by purchase (as defined in 
                                section 179(d)(2)) after December 31, 
                                1999,
                                    ``(II) the original use of which in 
                                a qualified area commences with the 
                                taxpayer, and
                                    ``(III) substantially all of the 
                                use of which is in a qualified area and 
                                is in active conduct of a qualified 
                                area business by the taxpayer in such 
                                area.
                            ``(ii) Special rule for substantial 
                        renovations.--In the case of any property which 
                        is substantially renovated by the taxpayer, the 
                        requirements of subclauses (I) and (II) of 
                        clause (i) shall be treated as satisfied. For 
                        purposes of the preceding sentence, property 
                        shall be treated as substantially renovated by 
                        the taxpayer if, during any 24-month period 
                        beginning after December 31, 1999, additions to 
                        basis with respect to such property in the 
                        hands of the taxpayer exceed the greater of--
                                    ``(I) an amount equal to the 
                                adjusted basis at the beginning of such 
                                24-month period in the hands of the 
                                taxpayer, or
                                    ``(II) $5,000.
                    ``(B) Special rules for sale-leasebacks.--For 
                purposes of subparagraph (A)(i)(II), if property is 
                sold and leased back by the taxpayer within 3 months 
                after the date such property was originally placed in 
                service, such property shall be treated as originally 
                placed in service not earlier than the date on which 
                such property is used under the leaseback.
            ``(5) Treatment of subsequent purchasers.--The term 
        `qualified area asset' includes any property which would be a 
        qualified asset but for paragraph (2)(A)(i), (3)(A), or 
        (4)(A)(i)(II) in the hands of the taxpayer if such property was 
        a qualified area asset in the hands of any prior holder.
            ``(6) 5-year safe harbor.--If any property ceases to be a 
        qualified area asset by reason of paragraph (2)(A)(iii), 
        (3)(C), or (4)(A)(i)(III) after the 5-year period beginning on 
        the date the taxpayer acquired such property, such property 
        shall continue to be treated as meeting the requirements of 
        such paragraph; except that the amount of gain to which 
        subsection (a) applies on any sale or exchange of such property 
        shall not exceed the amount which would be qualified capital 
        gain had such property been sold on the date of such cessation.
    ``(c) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified area.--
                    ``(A) In general.--The term `qualified area' 
                means--
                            ``(i) any urban area, or
                            ``(ii) any area within an Indian 
                        reservation.
                    ``(B) Indian reservation.--The term `Indian 
                reservation' has the meaning given such term in section 
                168(j)(6).
                    ``(C) Urban area.--The term `urban area' has the 
                meaning given such term in section 1393(a)(3).
            ``(2) Qualified area business.--The term `qualified area 
        business' has the same meaning given the term `enterprise zone 
        business' by section 1397B except that such section shall be 
        applied--
                    ``(A) without regard to subsections (b)(6) and 
                (c)(5) thereof,
                    ``(B) by substituting `80 percent' for `50 percent' 
                in subsections (b)(2) and (c)(1) thereof,
                    ``(C) by treating any reference to an empowerment 
                zone as a reference to the applicable qualified area, 
                and
                    ``(D) by treating the term `qualified business' 
                under subsection (d) thereof as not including any class 
                II or class III gaming activity conducted or licensed 
                by an Indian tribe (within the meaning of section 
                3402(r)(1)).
            ``(3) Qualified capital gain.--Except as otherwise provided 
        in this subsection, the term `qualified capital gain' means any 
        gain recognized on the sale or exchange of--
                    ``(A) a capital asset, or
                    ``(B) property used in the trade or business (as 
                defined in section 1231(b)).
            ``(4) Special rules.--
                    ``(A) Gain before 2000 not qualified.--The term 
                `qualified capital gain' shall not include any gain 
                attributable to periods before January 1, 2000.
                    ``(B) Certain gain on real property not 
                qualified.--The term `qualified capital gain' shall not 
                include any gain which would be treated as ordinary 
                income under section 1245 or under section 1250 if 
                section 1250 applied to all depreciation rather than 
                the additional depreciation.
                    ``(C) Intangibles and land not integral part of 
                qualified business.--The term `qualified capital gain' 
                shall not include any gain which is attributable to 
                real property, or an intangible asset, which is not an 
                integral part of a qualified area business.
                    ``(D) Related party transactions.--The term 
                `qualified capital gain' shall not include any gain 
                attributable, directly or indirectly, in whole or in 
                part, to a transaction with a related person. For 
                purposes of this subparagraph, persons are related to 
                each other if such persons are described in section 
                267(b) or 707(b)(1).
    ``(d) Certain Other Rules To Apply.--Rules similar to the rules of 
subsections (g), (h), (i)(2), and (j) of section 1202 shall apply for 
purposes of this section.
    ``(e) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which Are Qualified Area Businesses.--In the case of the 
sale or exchange of an interest in a partnership, or of stock in an S 
corporation, which was a qualified area business during substantially 
all of the period the taxpayer held such interest or stock, the amount 
of qualified capital gain shall be determined without regard to--
            ``(1) any gain which is attributable to real property, or 
        an intangible asset, which is not an integral part of any 
        qualified area business, and
            ``(2) any gain attributable to periods before December 31, 
        1999.''
    (b) Conforming Amendments.--
            (1) Paragraph (9) of section 1(h) of the Internal Revenue 
        Code of 1986 (relating to maximum capital gains rate) is 
        amended by striking ``and section 1202 gain'' and inserting 
        ``section 1202 gain, and gain excluded from gross income under 
        section 1203(a)''.
            (2) Section 172(d)(2)(B) of such Code (relating to 
        modifications with respect to net operating loss deduction) is 
        amended by striking ``section 1202'' and inserting ``sections 
        1202 and 1203''.
            (3) Section 642(c)(4) of such Code (relating to 
        adjustments) is amended by inserting ``or 1203(a)'' after 
        ``section 1202(a)'' and by inserting ``or 1203'' after 
        ``section 1202''.
            (4) Section 643(a)(3) of such Code (defining distributable 
        net income) is amended by striking ``section 1202'' and 
        inserting ``sections 1202 and 1203''.
            (5) Section 691(c)(4) of such Code (relating to 
        coordination with capital gain provisions) is amended by 
        inserting ``1203,'' after ``1202,''.
            (6) The second sentence of section 871(a)(2) of such Code 
        (relating to capital gains of aliens present in the United 
        States 183 days or more) is amended by inserting ``or 1203'' 
        after ``section 1202''.
            (7) The table of sections of part I of subchapter P of 
        chapter 1 of such Code is amended by adding at the end the 
        following:

                              ``Sec. 1203. 100 percent exclusion for 
                                        capital gain from urban and 
                                        Indian reservation 
                                        investment.''
            (8)(A) Subchapter W of chapter 1 of such Code (relating to 
        District of Columbia enterprise zone) is amended by striking 
        section 1400B and redesignating section 1400C as section 1400B.
            (B) Section 23(c) of such Code is amended by striking 
        ``1400C'' and inserting ``1400B''.
            (C) Section 25(e)(1)(C) of such Code is amended by striking 
        ``1400C'' and inserting ``1400B''.
            (D) Section 1016(a)(27) of such Code is amended by striking 
        ``1400C'' and inserting ``1400B'' each place it appears.
            (E) The table of sections for subchapter W of chapter 1 of 
        such Code is amended by striking the items relating to sections 
        1400B and 1400C and inserting the following:

                              ``Sec. 1400B. First-time homebuyer credit 
                                        for District of Columbia.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

SEC. 2. EXCLUSION FOR CAPITAL GAIN FROM CERTAIN FARM PROPERTY.

    (a) In General.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains), 
as amended by section 1, is amended by adding at the end the following:

``SEC. 1204. 100 PERCENT EXCLUSION FOR CAPITAL GAIN FROM FARM PROPERTY.

    ``(a) Exclusion.--In the case of an individual (as defined in 
section 1301(b)(2)), gross income shall not include any qualified 
capital gain from the sale or exchange of qualified farm property held 
for more than 5 years.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Qualified capital gain.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B) and (C), the term `qualified capital 
                gain' means any long-term capital gain.
                    ``(B) Gain before 2000 not qualified.--The term 
                `qualified capital gain' shall not include any gain 
                attributable to periods before January 1, 2000.
                    ``(C) Certain gain not qualified.--The term 
                `qualified capital gain' shall not include any gain 
                which would be treated as ordinary income under section 
                1245 or under section 1250 if section 1250 applied to 
                all depreciation rather than the additional 
                depreciation.
            ``(2) Qualified farm property.--The term `qualified farm 
        property' means any property used by the taxpayer in connection 
        with any farming business (as defined in section 263A(e)(4)).''
    (b) Conforming Amendments.--
            (1) Paragraph (9) of section 1(h) of the Internal Revenue 
        Code of 1986 (relating to maximum capital gains rate), as 
        amended by section 1, is amended by inserting ``or 1204(a)'' 
        after ``1203(a)''.
            (2) Section 172(d)(2)(B) of such Code (relating to 
        modifications with respect to net operating loss deduction), as 
        so amended, is amended by striking ``1202 and 1203'' and 
        inserting ``1202, 1203, and 1204''.
            (3) Section 642(c)(4) of such Code (relating to 
        adjustments), as so amended, is amended by striking ``1202(a) 
        or 1203(a)'' and inserting ``1202(a), 1203(a), or 1204(a)'' and 
        by striking ``1202 or 1203'' and inserting ``1202, 1203, or 
        1204.
            (4) Section 643(a)(3) of such Code (defining distributable 
        net income), as so amended, is amended by striking ``sections 
        1202 and 1203'' and inserting ``sections 1202, 1203, and 
        1204''.
            (5) Section 691(c)(4) of such Code (relating to 
        coordination with capital gain provisions), as so amended, is 
        amended by inserting ``1204,'' after ``1203,''.
            (6) The second sentence of section 871(a)(2) of such Code 
        (relating to capital gains of aliens present in the United 
        States 183 days or more), as so amended, is amended by striking 
        ``1202 or 1203'' and inserting ``1202, 1203, or 1204''.
            (7) The table of sections of part I of subchapter P of 
        chapter 1 of such Code, as so amended, is amended by adding at 
        the end the following:

                              ``Sec. 1204. 100 percent exclusion for 
                                        capital gain from farm 
                                        property.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

Summary: Excludes from the gross income of an individual any "qualified capital gain" (long-term capital gain) from the sale or exchange of "qualified farm property" held more than five years.