The Jobs And Growth Tax Relief Reconciliation Act of 2003
The following is a summary of provisions that may be of interest to individuals involved in the real estate industry.
Acceleration of 2001 Tax Cuts for Individuals:
Accelerates individual marginal rate cuts to 2003. Individual rates will be reduced from 27% to 25%; 30% to 28%; 35% to 33% and 38.6% to 35%. These rate cuts were originally scheduled to take effect in 2006 under the 2001 tax bill.
Bonus depreciation: Increases bonus depreciation from 30 percent to 50 percent and extends the provision through December 31, 2004. The Conference Report clarifies that "the adjusted basis of qualified property acquired by a taxpayer in a like-kind exchange or an involuntary conversion is eligible for the additional first year depreciation." "This is a huge benefit to those taxpayers contemplating a Section 1031 tax-deferred exchange transaction," according to Mr. Exeter.
Small business expensing: Increases the amount that small businesses can immediately deduct from $25,000 to $100,000 (from 2003 through 2005). Increases definition of small business from $200,000 of capital purchases to $400,000. These amounts are indexed for inflation.
Dividends and Capital Gains: Dividend and capital gain tax rate reduction 5/15: For taxpayers in the lowest two tax brackets, reduces the tax rate on dividends and capital gains to 5 percent through 2007 and zero percent in 2008. For all other taxpayers, reduces the tax on dividends and capital gains to 15 percent through 2008.
Section 1250 Recapture Rules: The rules and 25% capital gains rate relating to Section 1250 recapture were not changed under the bill. According to Mr. Exeter, "taxpayers that are considering a 1031 Exchange should always consult with a professional tax advisor to determine the ramifications of depreciation recapture." Mr Exeter further stated that "depreciation recapture may still be an issue even if the taxpayer has completed a 1031 Exchange, so professional guidance is essential."
Real Estate Investment Trusts: REIT dividends are generally not eligible for the 15% dividend rate but the following will be eligible: 1. capital gains on the sale of REIT stock; 2. REIT capital gains distributions (except to the extent of real estate depreciation recapture); 3. REIT dividends attributable to dividends from non-REIT subsidiaries; and 4. REIT dividends to the extent attributable to income that was taxed at the corporate level (e.g. instances when a REIT distributes less than 100% of its taxable income).
Comments(0)