Highlights of the Tax Act of 2003

By Randy Bonnecaze

On May 28, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003.

The highlights are as follows:

Rate reduction for capital gains and dividends. Effective for sales and exchanges (and payments received) after May 5 and before January 1, 2009, the 10 percent and 20 percent rates on adjusted net capital gains are reduced to 5 percent and 15 percent, respectively, for both regular tax and the alternative minimum tax (AMT). Effective for dividends received in tax years beginning after 2002 and before 2009, dividends received by an individual shareholder from domestic corporations are treated as net capital gains for purposes of applying the capital gain tax rates.

Accelerated reduction of tax brackets above 15 percent. For 2003 and thereafter, the individual tax rates above 15 percent would be 25 percent, 28 percent, 33 percent and 35 percent. The rates above 15 percent under the prior law were 27 percent, 30 percent, 35 percent and 38.6 percent. After 2010, rates above 15 percent will revert to the pre-2001 levels.

Bigger expensing allowance. Effective for property placed in service in 2003, 2004 and 2005 the Code Section 179 expensing allowance is increased from $25,000 to $100,000. The maximum annual expensing allowance is reduced (but not below zero) by the amount by which the cost of qualifying property placed in service during the tax year exceeds a specified dollar level. This dollar level is increased from $200,000 to $400,000.

Increased bonus first year depreciation. In general, under the prior law, a 30 percent additional first year depreciation allowance applied to the non-expensed portion of qualified property if the property was acquired by the taxpayer after September 10, 2001, and before September 11, 2004, and placed in service before 2005. Under the new law, for 30 percent bonus first year depreciation purposes, qualifying property may be acquired before 2005.

Fifty percent bonus first year depreciation applies to qualified property if its original use commences with the taxpayer after May 5, 2003, and the asset is acquired by the taxpayer after May 5, 2003, and before 2005, and it is placed in service before 2005.

Increased child credit, partially refundable for 2003. The child credit will increase from $600 to $1,000 per qualifying child. After 2004 the child credit would drop back to $700. For 2003 the increased amount of the child credit would be paid in advance beginning in July or August 2003 on the basis of information on each taxpayer's 2002 return filed in 2003.

Marriage penalty relief. The following marriage penalty relief provisions would apply for 2003 and 2004 only:

• The basic standard deduction amount for joint returns will be double the basic standard deduction amount for single returns
  
• The end point of the 15 percent tax bracket for joint returns is twice the end point of the 15 percent tax bracket for single returns.

Editor's Note: Randy J. Bonnecaze is a Certified Public Accountant (CPA) with Hannis T. Bourgeois LLP, Baton Rouge.