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SECTION 1. EXCLUSION FROM INCOME OF GAIN FROM SALE OF PRINCIPAL
RESIDENCE.

(a) In General.--Section 121 of the Internal Revenue Code of 1986
is amended to read as follows:

''SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

''(a) General Rule.--Gross income does not include gain from the
sale or exchange of property if, during the 5-year period ending on the
date of the sale or exchange, such property has been owned and used by
the taxpayer as his principal residence for periods aggregating 3 years
or more.
''(b) Special Rules.--
''(1) Property held jointly by husband and wife.--For
purposes of this section, if--
''(A) property is held by a husband and wife as
joint tenants, tenants by the entirety, or community
property,
''(B) such husband and wife make a joint return
under section 6013 for the taxable year of the sale or
exchange, and
''(C) one spouse satisfies the holding and use
requirements of subsection (a) with respect to such
property,
then both husband and wife shall be treated as satisfying the
holding and use requirements of subsection (a) with respect to
such property.
''(2) Property of deceased spouse.--For purposes of this
section, in the case of an unmarried individual whose spouse is
deceased on the date of the sale or exchange of property, if
the deceased spouse (during the 5-year period ending on the
date of the sale or exchange) satisfied the holding and use
requirements of subsection (a) with respect to such property,
then such individual shall be treated as satisfying the holding
and use requirements of subsection (a) with respect to such
property.
''(3) Tenant-stockholder in cooperative housing
corporation.--For purposes of this section, if the taxpayer
holds stock as a tenant-stockholder (as defined in section 216)
in a cooperative housing corporation (as defined in such
section), then--
''(A) the holding requirements of subsection (a)
shall be applied to the holding of such stock, and
''(B) the use requirements of subsection (a) shall
be applied to the house or apartment which the taxpayer
was entitled to occupy as such stockholder.
''(4) Involuntary conversions.--For purposes of this
section, the destruction, theft, seizure, requisition, or
condemnation of property shall be treated as the sale of such
property.
''(5) Property used in part as principal residence.--In the
case of property only a portion of which, during the 5-year
period ending on the date of the sale or exchange, has been
owned and used by the taxpayer as his principal residence for
periods aggregating 3 years or more, this section shall apply
with respect to so much of the gain from the sale or exchange
of such property as is determined, under regulations prescribed
by the Secretary, to be attributable to the portion of the
property so owned and used by the taxpayer.
''(6) Determination of marital status.--In the case of any
sale or exchange, for purposes of this section--
''(A) the determination of whether an individual is
married shall be made as of the date of the sale or
exchange; and
''(B) an individual legally separated from his
spouse under a decree of divorce or of separate
maintenance shall not be considered as married.
''(7) Application of section 1033.--In applying section
1033 (relating to involuntary conversions), the amount realized
from the sale or exchange of property shall be treated as being
the amount determined without regard to this section, reduced
by the amount of gain not included in gross income pursuant to
an election under this section.
''(8) Property acquired after involuntary conversion.--If
the basis of the property sold or exchanged is determined (in
whole or in part) under subsection (b) of section 1033
(relating to basis of property acquired through involuntary
conversion), then the holding and use by the taxpayer of the
converted property shall be treated as holding and use by the
taxpayer of the property sold or exchanged.
''(9) Determination of use during periods of out-of-
residence care.--In the case of a taxpayer who--
''(A) becomes physically or mentally incapable of
self-care, and
''(B) owns property and uses such property as the
taxpayer's principal residence during the 5-year period
described in subsection (a) for periods aggregating at
least 1 year,
then the taxpayer shall be treated as using such property as
the taxpayer's principal residence during any time during such
5-year period in which the taxpayer owns the property and
resides in any facility (including a nursing home) licensed by
a State or political subdivision to care for an individual in the
taxpayer's condition.
''(c) Election to Have Section Not Apply.--If the taxpayer so
elects with respect to any sale or exchange, this section shall not
apply to such sale or exchange.''
(b) Repeal of Nonrecognition of Gain on Rollover of Principal
Residence.--Section 1034 of such Code (relating to rollover of gain on
sale of principal residence) is hereby repealed.
(c) Clerical and Conforming Amendments.--
(1) The following provisions of the Internal Revenue Code
of 1986 are each amended by striking ''section 1034'' and
inserting ''section 121'': sections 25(e)(7), 56(e)(1)(A),
56(e)(3)(B)(i), 143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I),
280A(d)(4)(A), 464(f)(3)(B)(i), 1033(h)(4), 1274(c)(3)(B),
6334(a)(13), and 7872(f)(11)(A).
(2) Paragraph (4) of section 32(c) of such Code is amended
by striking ''(as defined in section 1034(h)(3))'' and by
adding at the end the following new sentence: ''For purposes of
the preceding 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.''
(3) Subparagraph (A) of 143(m)(6) of such Code is amended
by inserting ''(as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1997)'' after
''1034(e)''.
(4) Subsection (e) of section 216 of such Code is amended
by striking ''such exchange qualifies for nonrecognition of
gain under section 1034(f)'' and inserting ''such dwelling unit
is used as his principal residence (within the meaning of
section 121)''.
(5) Section 512(a)(3)(D) of such Code is amended by
inserting ''(as in effect on the day before the date of the
enactment of this parenthetical)'' after ''1034''.
(6) Paragraph (7) of section 1016(a) of such Code is
amended by inserting ''(as in effect on the day before the date
of the enactment of this parenthetical)'' after ''1034'' and by
inserting ''(as so in effect)'' after ''1034(e)''.
(7) Paragraph (3) of section 1033(k) of such Code is
amended to read as follows:
''(3) For exclusion from gross income of gain from
involuntary conversion of principal residence, see section
121.''
(8) Subsection (e) of section 1038 of such Code is amended
to read as follows:
''(e) Principal Residences.--If--
''(1) subsection (a) applies to a reacquisition of real
property with respect to the sale of which gain was not
recognized under section 121 (relating to gain on sale of
principal residence); and
''(2) within 1 year after the date of the reacquisition of
such property by the seller, such property is resold by him,
then, under regulations prescribed by the Secretary, subsections (b),
(c), and (d) of this section shall not apply to the reacquisition of
such property and, for purposes of applying section 121, the resale of
such property shall be treated as a part of the transaction
constituting the original sale of such property.''
(9) Paragraph (7) of section 1223 of such Code is amended
by inserting ''(as in effect on the day before the date of the
enactment of this parenthetical)'' after ''1034''.
(10) Paragraph (7) of section 1250(d) of such Code is
amended to read as follows:
''(7) Disposition of principal residence.--Subsection (a)
shall not apply to a disposition of property to the extent used
by the taxpayer as his principal residence (within the meaning
of section 121, relating to gain on sale of principal
residence).''
(11) Subsection (c) of section 6012 of such Code is amended
by striking ''(relating to one-time exclusion of gain from sale
of principal residence by individual who has attained age 55)''
and inserting ''(relating to gain from sale of principal
residence)''.
(12) Paragraph (2) of section 6212(c) of such Code is
amended by striking subparagraph (C) and by redesignating the
succeeding subparagraphs accordingly.
(13) Section 6504 of such Code is amended by striking
paragraph (4) and by redesignating the succeeding paragraphs
accordingly.
(14) The item relating to section 121 in the table of
sections for part III of subchapter B of chapter 1 of such Code
is amended to read as follows:

''Sec. 121. Exclusion of gain from sale
of principal residence.''
(15) The table of sections for part III of subchapter O of
chapter 1 of such Code is amended by striking the item relating
to section 1034.
(d) Effective Date.--The amendments made by this section shall
apply to sales and exchanges occurring after __________________.
Amends the Internal Revenue Code to exclude all gain on the sale of a principal residence if owned and used as the principal residence for periods aggregating at least three years during the five-year period prior to sale or exchange.
Sets forth special rules relating to: (1) jointly held property; (2) a deceased spouse; (3) a cooperative housing tenant-stockholder; (4) partial principal residence use; (5) determination of marital status; (6) acquisition after involuntary conversion; and (7) periods of out-of-residence health care.