What the Bush Tax Bills Means for Equipment Leasing
Bonus Depreciation - The 30% bonus depreciation increases to 50% for property:
a) Acquired by the taxpayer after May 5, 2003 and before January 1, 2005, as long as there was not a written binding contract in effect before May 6, 2003,
b) The original use is with the taxpayer,
c) The property is placed in service by the taxpayer before January 1, 2005, (property found in §168(k)(2(B) has a January 1, 2006 date), and
d) The taxpayer makes an election to use this 50% instead of the 30%.
The 30% bonus depreciation still exists for those taxpayers that prefer to use it instead of the 50%. Taxpayers may elect on a class-by-class basis to claim 30% instead of 50% bonus first-year depreciation for qualifying property, or elect not to claim bonus first-year depreciation at all.
Automobiles have a first year depreciation/§179 limitation of $7,650 plus the normal limitation if the taxpayer elects the 50% bonus depreciation. (This limitation remains at $4,600 plus the normal limitation if the taxpayer uses the 30% bonus depreciation and at the normal limitation if the taxpayer elects out of the bonus depreciation entirely.)
The 30% bonus depreciation rules are changed by replacing the September 11, 2004 deadline with January 1, 2005.
This provision is effective for tax years ending after May 5, 2003.
Increased §179 Expense Limits - The expensing limit is increased to $100,000 for tax years beginning after 2002 and before 2006. The maximum purchases before the phase-out increases to $400,000 for these same years. These amounts are indexed for inflation in $1,000 increments.
Off-the-shelf computer software is now eligible for the §179 expensing election starting with tax years beginning after December 31, 2002.
The §179 election can now be irrevocably revoked for any tax year beginning after 2002 and before 2006. In other words an election to use §179 can be revoked to not use it, but the taxpayer can not elect back in after making the election and revoking it. Once you are using §179, you can undo it but can't redo it.
There is no sunset provision for this portion.
REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS
Under current law, an individual's adjusted net capital gain generally is taxed at a maximum rate of 20% (10% if it would otherwise be taxed at 10% or 15%) for regular tax and AMT purposes.
Adjusted net capital gain is net capital gain (net long-term capital gains exceeding net short-term capital losses) less 28% rate gain (affecting collectibles and certain small business stock) and less 25% rate gain (generally, gain representing depreciation claimed on MACRS realty).
Gain from property held more than five years that would otherwise be taxed at 10% is taxed at 8%, and gain from property held more than five years and the holding period for which begins after 2000, which would otherwise be taxed at 20%, is taxed at 18%.
Dividends received by an individual currently are taxed as ordinary income at rates up to 38.6% (for 2003). Under the new law . . .
Individual Capital Gains Tax Rate Decreases - The 10% rate decreases to 5% (0% in tax years beginning after 2007).
The 20% rate decreases to 15%. The tax computation for years that include May 6, 2003 will be similar to the 1997 computation.
Gains prior to May 6, 2003 will normally be taxed at the then existing rates and only new gains will be taxed at the new lower rates.
The Alternative Minimum Tax adjustment for the §1202 exclusion decreases from 42% to 7%, effective with dispositions after May 5, 2003.
These rules are effective for taxable years ending after May 5, 2003.
Dividends Tax Rate Decreased - Dividends will be combined with the taxpayer's net capital gain and will be taxed at the rates described above for capital gains. Qualified dividends include those received during the current year from domestic corporations and certain qualified foreign corporations.
There are special provisions and exceptions.
Dividends that are not eligible include:
a) Dividends paid from a corporation that was exemption under §§501 or 521 for the payment year or the preceding year,
b) Dividends described in §404(k),
c) Dividends allowed as a deduction under §591 (dividends paid by mutual savings banks), and
d) §246(C) with some modifications.
There are other restrictions that apply to REITs and RICs. Dividends will not be considered investment income for investment interest expense deductions unless the taxpayer elects to treat them as such (similar to the old capital gains provision).
Sunset Provision: These provisions sunset for tax years beginning after December 31, 2008.
Brief Tax Summary for Attorneys
* * * * * Barry S. Marks * * * * *
BERKOWITZ, LEFKOVITS, ISOM & KUSHNER
420 N 20th St., 1600 SouthTrust Tower
Birmingham, AL 35203-5202
firstname.lastname@example.org - www.leaselawyer.com
205.250.8333 - fax:322.8007
Tax Provisions That Did not Make the Cut