On May 28, President Bush signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003. This is the third tax cut of the Bush presidency. The act reduces income taxes, on a temporary basis, for individuals and corporations. The key features of the act are as follows:

Individual Income Tax Rates
Retroactive to January 1, 2003, the act accelerates the temporary reductions in individual income tax rates that were scheduled for 2004 and 2006 under the 2001 tax cut. As a result, the top tax rate for 2003 is 35 percent. The top rate remains at that level through the end of 2010, at which point it reverts to 39.6 percent.

Individual Capital Gains
For sales of capital assets from May 6, 2003, through 2008, the act reduces the maximum individual long-term capital gains rate from 20 percent to 15 percent.

Dividends Received by Individuals
The act treats dividends received by individuals from January 1, 2003, through 2008 as if they were long-term capital gains subject to a maximum tax rate of 15 percent. Exceptions or limitations apply to certain special types of dividends, such as dividends from real estate investment trusts.

Individual Alternative Minimum Tax
For 2003 and 2004, the act increases the exemption levels for the individual alternative minimum tax from $49,000 to $58,000 for joint returns and from $35,750 to $40,250 for single returns. After 2004, the exemption levels drop to the pre-2001 levels of $45,000 and $33,750, respectively.

Bonus Depreciation
For equipment and certain other types of property, not including real property or other long-life assets, placed in service in a business from May 6, 2003, through 2004 (2005 in certain instances), the act increases the first-year "bonus" depreciation deduction from 30 percent of basis to 50 percent of basis. As under prior law, normal depreciation is allowed in addition to bonus depreciation, but normal depreciation is computed using a basis reduced by bonus depreciation.

Small Business Investment
For tax years beginning in 2003, 2004 and 2005, the act increases from $25,000 to $100,000 the allowable annual write-offs of costs of equipment by small businesses. For those three years, the act also increases the investment levels at which the allowable write-off phases out.

Because the act provides for the termination of each of the foregoing tax cuts, it is a certainty that Congress will revisit the act frequently in coming years.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.