Jobs and Growth Tax Relief Reconciliation Act of 2003

Enacted May 28, the Jobs and Growth Tax Relief Reconciliation Act of 2003 contains three provisions that are of particular interest to forest owners:

1. The tax rate on long-term capital gains is reduced from 20 percent to 15 percent for taxpayers in the top four tax brackets, and from 10 percent to 5 percent for taxpayers in the bottom two brackets, effective for sales and dispositions after May 5, 2003. The 5-percent rate will drop to 0 percent effective after December 31, 2007, but no change is scheduled for the 15-percent rate. The new rates are effective for computing both the regular tax and the Alternative Minimum Tax. This provision sunsets after December 31, 2008.

2. The temporary depreciation “bonus” enacted under the Job Creation and Worker Assistance Act of 2002 is increased from 30 percent to 50 percent for new depreciable property that is acquired after May 5, 2003, and generally placed in service before January 1, 2005. Used property, property acquired under a binding contract in effect before May 5, and New York Liberty Zone property do not qualify for this provision – although New York Liberty Zone property remains eligible for the older 30 percent “bonus.” The provision sunsets after December 31, 2004.

3. The limit on the section 179 deduction for purchases of qualifying depreciable property is increased from $25,000 to $100,000 for property placed in service during tax years after 2002 and is indexed for inflation after 2003. The ceiling amount before the deduction begins to be reduced also is increased, from $200,000 to $400,000. This provision sunsets after December 31, 2005. [NOTE the section 179 deduction is available only for property acquired for use in a trade or business. It is not available for property held for the production of income – as an investment – and it is not available to trusts or estates.]

In other provisions, the Act:

4. Accelerates the reductions in the marginal tax rates for ordinary income to 25 percent, 28 percent, 33 percent, and 35 percent, effective January 1, 2003. These rates are effective for computing both the regular tax and the Alternative Minimum Tax. This provision sunsets after 2010.

5. Increases the taxable income level from $6,000 to $7,000 for single filers, and from $12,000 to $14,000 for married taxpayers filing joint returns, effective in 2003. This provision is indexed for inflation after 2003, but sunsets after 2004.

6. Increases the standard deduction and the 15 percent tax bracket for married taxpayers filing joint returns to twice those for single filers, effective in 2003. This provision also sunsets after 2004.

7. Increases the child tax credit from $600 to $1,000, effective in 2003. This provision also sunsets after 2004.

8. Increases the exemption from the Alternative Minimum Tax to $40,250 for individuals and $58,000 for married taxpayers filing joint returns. This provision also sunsets after 2004.

9. Taxes dividends paid by both domestic and foreign corporations at the same rates as long-term capital gains. This provision sunsets after 2008.

(Sources: Tax Analysts 2003, CCH 2003)