Jobs and Growth Tax Relief and Reconciliation Act of 2003—Highlights of JGTRRA

Capital Gains

The new law reduces the tax rate on capital gains from 20% to 15% (10% to 5% for taxpayers in the 10% and 15% brackets). These rates are applicable for the period May 6, 2003, through December 31, 2008. The capital gains tax rate for taxpayers in the 10% or 15% bracket drops to zero in 2008. These lower rates apply for both regular tax and alternative minimum tax purposes. On January 1, 2009, the old, pre-JGTRRA rates of 20% and 10% reappear. The shaded lines reflect the temporary reductions made by JGTRRA.

Year	Capital Gains Rate	Capital Gains Rate (Taxpayers in the 10% or 15% Bracket)
01/01/03 -05/05/03	20%	10%
05/06/03 -12/31/03	15%	5%
2004	15%	5%
2005	15%	5%
2006	15%	5%
2007	15%	5%
2008	15%	0%
2009	20%	10%
2010	20%	10%
2011	20%	10%

Also Note:

• Deductions of capital losses against ordinary income are still limited to $3,000 per year for individual taxpayers (net capital loss amounts in excess of $3,000 may be carried forward as capital losses in succeeding years).
• Capital gain attributable to collectibles or certain small business stock is still subject to a maximum rate of 28 percent.
• Special five-year property rate temporarily inapplicable. I.R.C. §1(h)(2)(B) provided that the 20% basic long-term capital gain rate is reduced to 18 percent for “qualified 5-year gain” resulting from the sale or exchange of property with a holding period beginning after December 31, 2000. The lower rates started in 2001 for individuals in the 15-percent bracket, and after 2005 for individuals in higher brackets (for property held for at least five years starting after 2000). The 18% and 8% rates are repealed until 2009 (in 2009 the pre-JGTRRA capital gains rates are scheduled to return). The repeal of the eight-percent rate is effective May 6, 2003.

Dividends

The new law applies the capital gains tax rates to dividends. Taxpayers in the 10% or 15% bracket pay a 5% rate of tax on dividends paid between January 1, 2003, and December 31, 2007, and zero percent in 2008. Taxpayers in tax brackets above 15 percent pay a 15 percent rate of tax on dividends paid between January 1, 2003, and December 31, 2008. Pre-JGTRRA taxation of dividends reappears in 2009.

Year	Rate of Taxation	Rate of Taxation (Taxpayers in the 10% or 15% Bracket)
2003	15%	5%
2004	15%	5%
2005	15%	5%
2006	15%	5%
2007	15%	5%
2008	15%	0%
2009 and thereafter	Pre-JGTRRA rates return in 2009

Also note:

• The 15%  and 5% rates are effective for dividends received in tax years beginning after 2002.
• What is a dividend? Expect lots of regulations.

Child Tax Credit

The new law increases the $600 child tax credit to $1,000 for 2003 and 2004. In 2005, as per EGTRRA 2001, the child tax credit is scheduled to fall to $700, but increases back to $1,000 by 2010 (and then back to $500. when EGTRRA sunsets in 2011). The additional $400 will be paid in advance, starting in July to those who have paid and filed their 2002 taxes.

Year	Child Tax Credit/Per Child
2003	$1,000
2004	$1,000
2005	$  700
2006	$  700
2007	$  700
2008	$  700
2009	$  800
2010	$1,000
2011	$  500

Also note: 

The child tax credit continues to be reduced once adjusted gross income (AGI), with certain adjustments, exceeds the following threshold levels:

• $110,000 of AGI for joint filers
• $75,000 for singles or heads of household
• $55,000 for married filing separately.

For every $1,000 of modified AGI, or fraction thereof, exceeding the applicable threshold, the credit is reduced by $50.

Standard Deduction (Temporary Elimination of Marriage Penalty)

The new law increases the standard deduction for married couples to twice the amount of the standard deduction for single taxpayers and increases the size of the 15 percent rate bracket for married couples filing jointly to twice that of single filers. These rules are applicable for the tax years, 2003 and 2004. In 2005, the standard deduction for married taxpayers will fall to 180 percent of the standard deduction for single taxpayers and then gradually rise to double the amount by 2009 (as per EGTRRA 2001).

Income Tax Rate Reductions

The new law accelerates EGTRRA’s individual marginal rate cuts that were originally pegged for 2006 and later, by retroactively accelerating the reductions in marginal rates (see shaded cells below) effective January 1, 2003.

Year	Bracket 1	Bracket 2	Bracket 3	Bracket 4	Bracket 5	Bracket 6
2003 to 2010	10%	15%	25%	28%	33%	35%
2011	15% is lowest bracket	15%	28%	31%	36%	39.6%

Also note: Because the rate cuts are retroactive, taxpayers will be able to reduce the amounts that they have withheld from their paycheck to reflect both the prospective and retroactive nature of the tax cuts.

Expanded 10% Bracket

The new law increases the taxable income level to which the 10% rate applies from $6,000 to $7,000 ($12,000 to $14,000 for joint filers) for 2003 and 2004 (indexed for inflation). The level returns to $6,000 ($12,000  for joint filers) in 2005 when this provision sunsets.

AMT Exemption

The alternative minimum tax (AMT) only applies to alternative minimum taxable income (AMTI) in excess of an allowable exemption amount. The new law increases the exemption from the alternative minimum tax to $40,250 for individuals and $58,000 for married couples filing jointly for 2003 and 2004. The exemption amount returns to pre-JGTRRA law in 2005.

	2002	2003	2004	2005 and Thereafter
Joint Returns and Surviving Spouses	$49,000	$58,000	$58,000	$45,000
Single Taxpayers	$35,750	$40,250	$40,250	$33,750
Married Filing Separately	$24,500	$29,000	$29,000	$22,500

Business Expensing and Depreciation

The new law increase so-called  bonus depreciation (applicable to qualified property) from 30% to 50% for acquisitions made between May 6, 2003, and December 31, 2004. Property does not qualify if it was subject to a binding contract prior to May 6, 2003.

The new law increases expensing under I.R.C section 179 from $25,000 to $100,000 for tax years 2003 through 2005. It also increases the investment limitation from $200,000 of capital purchases to $400,000 (indexed for inflation in 2004 and 2005).

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