REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS; REPEAL OF 5-YEAR HOLDING PERIOD REQUIREMENT.

SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS; REPEAL OF 5-YEAR HOLDING PERIOD REQUIREMENT.(a) In General.—(1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by striking “10 percent” and inserting “5 percent (0 percent in the case of taxable years beginning after 2007)”.(2) The following sections are each amended by striking “20 percent” and inserting “15 percent”:(A) Section 1(h)(1)(C).(B) Section 55(b)(3)(C).(C) Section 1445(e)(1).(D) The second sentence of section 7518(g)(6)(A).(E) The second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936.(b) Conforming Amendments.—(1) Section 1(h) is amended—(A) by striking paragraphs (2) and (9),(B) by redesignating paragraphs (3) through (8) as paragraphs (2) through (7), respectively, and(C) by redesignating paragraphs (10), (11), and (12) as paragraphs (8), (9), and (10), respectively.(2) Paragraph (3) of section 55(b) is amended by striking “In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (B) and (C).”.117 STAT. 759(3) Paragraph (7) of section 57(a) is amended—(A) by striking “42 percent” the first place it appears and inserting “7 percent”, and(B) by striking the last sentence.(c) Transitional Rules for Taxable Years Which Include May 6, 2003.—For purposes of applying section 1(h) of the Internal Revenue Code of 1986 in the case of a taxable year which includes May 6, 2003—(1) The amount of tax determined under subparagraph (B) of section 1(h)(1) of such Code shall be the sum of—(A) 5 percent of the lesser of—(i) the net capital gain determined by taking into account only gain or loss properly taken into account for the portion of the taxable year on or after May 6, 2003 (determined without regard to collectibles gain or loss, gain described in section 1(h)(6)(A)(i) of such Code, and section 1202 gain), or (ii) the amount on which a tax is determined under such subparagraph (without regard to this subsection), (B) 8 percent of the lesser of—(i) the qualified 5-year gain (as defined in section 1(h)(9) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of this Act) properly taken into account for the portion of the taxable year before May 6, 2003, or(ii) the excess (if any) of—(I) the amount on which a tax is determined under such subparagraph (without regard to this subsection), over(II) the amount on which a tax is determined under subparagraph (A), plus(C) 10 percent of the excess (if any) of—(i) the amount on which a tax is determined under such subparagraph (without regard to this subsection), over(ii) the sum of the amounts on which a tax is determined under subparagraphs (A) and (B).(2) The amount of tax determined under subparagraph (C) of section (1)(h)(1) of such Code shall be the sum of—(A) 15 percent of the lesser of—(i) the excess (if any) of the amount of net capital gain determined under subparagraph (A)(i) of paragraph (1) of this subsection over the amount on which a tax is determined under subparagraph (A) of paragraph (1) of this subsection, or(ii) the amount on which a tax is determined under such subparagraph (C) (without regard to this subsection), plus(B) 20 percent of the excess (if any) of—(i) the amount on which a tax is determined under such subparagraph (C) (without regard to this subsection), over (ii) the amount on which a tax is determined under subparagraph (A) of this paragraph.(3) For purposes of applying section 55(b)(3) of such Code, rules similar to the rules of paragraphs (1) and (2) of this subsection shall apply.117 STAT. 760(4) In applying this subsection with respect to any pass-thru entity, the determination of when gains and losses are properly taken into account shall be made at the entity level.(5) For purposes of applying section 1(h)(11) of such Code, as added by section 302 of this Act, to this subsection, dividends which are qualified dividend income shall be treated as gain properly taken into account for the portion of the taxable year on or after May 6, 2003.(6) Terms used in this subsection which are also used in section 1(h) of such Code shall have the respective meanings that such terms have in such section.(d) Effective Dates.—(1) In general.—Except as otherwise provided by this subsection, the amendments made by this section shall apply to taxable years ending on or after May 6, 2003.(2) Withholding.—The amendment made by subsection (a)(2)(C) shall apply to amounts paid after the date of the enactment of this Act.(3) Small business stock.—The amendments made by subsection (b)(3) shall apply to dispositions on or after May 6, 2003.