2003 Tax Law Changes

2003 Summary Tax Law Changes for Individuals

  • 2003 tax rates have been reduced and the 10% tax bracket has been expanded.  

  • The maximum tax rate on capital gains has been reduced to 15% (5% for taxpayers in the lower brackets) for assets sold after May 5, 2003.

  • Dividends received during 2003 will be taxed at the same 15% and 5% rates applicable to capital gains.

  • Marriage penalty relief for 2003 (increased standard deduction and expansion of the 15% tax bracket).

  • The maximum child tax credit has increased from $600 to $1,000 per child for 2003. The increase for 2003 ($400 per child) will be sent to taxpayers during the summer as an advance payment.

  • The alternative minimum tax exemption amount has been increased for 2003.

2003 Summary Tax Law Changes for Businesses

  • The special first-year depreciation allowance has been increased from 30% to 50% for property purchased after May 5, 2003.The depreciation limit for vehicles subject to the 50% allowance has been increased to $10,710.

  • The maximum section 179 expensing amount has been increased to $100,000 for 2003.

Detailed discussion of the changes in 2003 Tax Law

The Jobs and Growth Tax Relief Reconciliation Act of 2003, (JGTRR)  was signed by President Bush on May 28, 2003. Described below are the major changes made by the new law that affect tax years beginning in 2003. Be sure to take these changes into account when figuring any future estimated tax payments due for 2003.

  • The 2003 Tax Rate Schedules have been revised to reflect the following changes:

    - The tax rate brackets of 27%, 30%, 35%, and 38.6%, have been reduced to 25%, 28%, 33%, and 35%, respectively.

    - The 15% rate bracket for married taxpayers filing jointly and qualifying widow(er)s has expanded to twice that of single filers.

    - The maximum taxable income subject to the 10% tax rate has increased to $7,000 for single taxpayers and married taxpayers filing separately ($14,000 for married taxpayers filing jointly and qualifying widow(er)s).
  • The basic standard deduction for married taxpayers filing jointly and qualifying widow(er)s has increased to $9,500 (twice that of single filers). The standard deduction for married taxpayers filing separately has increased to $4,750 (the same as that of single taxpayers).

  • The maximum child tax credit has increased from $600 to $1,000 per child. Beginning on July 25, 2003, checks will be mailed to taxpayers who claimed the child tax credit for 2002. The checks are an advance payment of the increased portion of the child tax credit for 2003, up to a maximum of $400 per child, and will be based on 2002 tax return information using the number of qualifying children under age 17 as of December 31, 2003. No action is required by any taxpayer to receive an advance payment check. The checks will be mailed to qualifying taxpayers on the dates shown in the Mailing Schedule for Advance Child Tax Credit Payments. The advance payment reduces the amount of the child tax credit allowed for 2003. Any advance payment that is more than the child tax credit for 2003 does not have to be paid back.
  • The alternative minimum tax exemption amount has increased to $40,250 for single taxpayers and taxpayers filing as head of household; $58,000 for married taxpayers filing jointly and qualifying widow(er)s; and $29,000 for married taxpayers filing separately.

  • The maximum tax rate on net capital gain (i.e., net long-term capital gain reduced by any net short-term capital loss) has been reduced from 20% to 15% (and from 10% to 5% for taxpayers in the 10% and 15% tax rate brackets) for property sold or otherwise disposed of after May 5, 2003 (and installment sale payments received after that date). The reduced rate applies for both the regular tax and the alternative minimum tax. The higher rates that apply to unrecaptured section 1250 gain, collectibles gain, and section 1202 gain have not changed.

    Note: Fiscal year 2002-2003 filers should see Announcement 2003-56  for special rules for filing Schedule D (Form 1040), Capital Gains and Losses, and Form 6251, Alternative Minimum Tax—Individuals. 12-SEP-2003

  • The same 15% (or 5%) maximum tax rate that applies to net capital gain also applies to dividends paid by most domestic and foreign corporations after December 31, 2002. Certain dividends from regulated investment companies (such as mutual funds), real estate investment trusts, and certain foreign corporations do not qualify for the reduced rates.  The 2003 Form 1099-DIV, Dividends and Distributions, and the 2003 Instructions for Form 1099-DIV were reissued to add a box for the reporting of qualified dividends subject to the reduced rates.

Depreciation and Section 179 Expense

Qualified property. For qualified property you acquire after May 5, 2003, you can take a special depreciation allowance that is equal to 50% of the property's depreciable basis. However, instead of claiming the 50% special allowance, you can elect to claim the 30% special allowance or elect not to claim any special allowance. Note: If you acquire qualified property in a like-kind exchange or involuntary conversion, the carried-over basis of the acquired property is eligible for a special depreciation allowance.

Section 179 limit. The limit on the section 179 expense deduction is increased to $100,000 for qualified property ($135,000 for qualified zone property, qualified renewal property, or qualified New York Liberty Zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $400,000.

Definition of section 179 property. The definition of section 179 property has been expanded to include off-the-shelf computer software placed in service in 2003. This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. It includes any program designed to cause a computer to perform a desired function, However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.

Section 179 expense election. A section 179 expense election (or any specification made in the election) made after 2002 can be revoked without IRS approval by filing an amended return. However, once made, the revocation is irrevocable.

Passenger automobile. The total depreciation deduction (including the section 179 expense and the special depreciation allowance) you can take for a passenger automobile (that is not a truck or van or an electric vehicle) that you use in your business and first place in service in 2003 is:

  • $7,660 if acquired before May 6, 2003, and you claim the 30% special allowance;
  • $10,710 if acquired after May 5, 2003, and you claim the 50% or 30% special allowance; or
  • $3,060 if you elect not to claim any special allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property.

    Caution: The limits are reduced if the business use of the vehicle is less than 100%.

Electric vehicle. The total depreciation deduction (including the section 179 expense and the special depreciation allowance) you can take for an electric vehicle that you use in your business and first place in service in 2003 is:

  • $22,880 if acquired before May 6, 2003, and you claim the 30% special allowance;
  • $32,030 if acquired after May 5, 2003, and you claim the 50% or 30% special allowance; or
  • $9,080 if you elect not to claim any special allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property.

    Caution: The limits are reduced if the business use of the vehicle is less than 100%.

Truck or van. The total depreciation deduction (including the section 179 deduction and the special depreciation allowance) you can take for a truck or van (such as a minivan or a sports utility vehicle built on a truck chassis) that you use in your business and first place in service in 2003 is higher than for other passenger vehicles. The maximum amount allowable is:

  • $7,960 if acquired before May 6, 2003, and you claim the 30% special allowance;
  • $11,010 if acquired after May 5, 2003, and you claim the 50% or 30% special allowance; or
  • $3,360 if you elect not to claim any special allowance for the vehicle or the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property.

    Caution: The limits are reduced if the business use of the vehicle is less than 100%.

Qualified nonpersonal use vehicle. A truck or van placed in service after July 6, 2003, that is a “qualified nonpersonal use vehicle” is not considered to be a passenger automobile (and is therefore not subject to the passenger automobile limits). A truck or van is a qualified nonpersonal use vehicle only if it has been specially modified with the result that it is not likely to be used more than a de minimis amount for personal purposes. For example, a van that has only a front bench for seating, in which permanent shelving has been installed, that constantly carries merchandise or equipment, and that has been specially painted with advertising or the company's name, is a vehicle not likely to be used more than a de minimus amount for personal purposes. -- 10-OCT-2003


Extension of Time To Take Advantage of Certain Tax Relief for Tax Years
That Include September 11, 2001

Time to claim special depreciation allowances. For your tax year that included September 11, 2001, you may have until December 31, 2003, to:

  1. Claim the 30% special depreciation allowance (or Liberty Zone depreciation allowance),
  2. Elect the increased section 179 expense deduction for Liberty Zone property, or
  3. Depreciate Liberty Zone leasehold improvement property as 5-year property using the straight-line method of depreciation.

You may be eligible if:

  • You placed qualified property (or Liberty Zone property) in service during your tax year,
  • You timely filed your return for your tax year without claiming the special depreciation allowance or increased section 179 expense deduction, and
  • You did not make an election not to claim the 30% special depreciation allowance.

If eligible, file an amended return for your tax year that included September 11, 2001, and any later affected tax years. In some situations, you may have to file Form 3115, Application for Change in Accounting Method. Use the procedures outlined in Rev. Proc. 2003-50, 2003-50 IRB 119.

Half-year convention. You may be eligible for additional time to elect to apply the half-year convention instead of the mid-quarter convention to all property placed in service during your 2000 fiscal year or 2001 calendar or fiscal year, if:

  1. The third or fourth quarter of your tax year included September 11, 2001;
  2. You otherwise would have been required to use the mid-quarter convention under MACRS;
  3. You timely filed your return for your tax year without making the election.

If eligible, you can make the election and any necessary adjustments resulting from the election by filing, by December 31, 2003, an amended return for your tax year that included September 11, 2001, and any later affected tax years. For more information, see Notice 2003-45, 2003-29 I.R.B. 86. -- 10-OCT-2003

 



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