Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)
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Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)
The critical provision is:
A short overview of the key provision is provided below, followed by a set of links to more detailed information. The reader is cautioned to refer to the tax code and/or a tax specialist when faced with these and other tax treatment issues.
Increase and Extension of Bonus Depreciation
Under the Job Creation and Worker Assistance Act of 2002 (JCWAA) businesses were allowed to take an additional first-year, depreciation deduction equal to 30 percent of the original "adjusted (depreciable) basis" -- usually the fully installed cost -- of qualified property. Property eligible for this treatment includes business equipment, computer hardware and most software; but, it does not include real estate or buildings. Property must be acquired after September 10, 2001, and before September 11, 2004. The bonus depreciation is allowed for both the regular tax and the alternative minimum tax (AMT).
In addition, the business is entitled to
"normal"
first-year MACRS depreciation. However, the depreciable basis of the
property
and the regular depreciation allowances are adjusted to reflect the
additional
first-year depreciation deduction.
Under the Jobs and Growth Tax Relief
Reconciliation Act of 2003 (JGTRRA) the additional, first-year
depreciation deduction, commonly known as "bonus depreciation," is
increased from 30 percent to 50 percent of the original
"adjusted (depreciable) basis"
of
qualified property. Property eligible for the 50-percent bonus
depreciation includes property that would have qualified for the
30-percent bonus depreciation and that is acquired or constructed after
May 5, 2003 and before January 1, 2005.
A taxpayer may elect out of the 50-percent
bonus depreciation by asset class on an annual basis. If so, the
taxpayer is then subject to 30-percent bonus depreciation because
JGTRRA extends the 30-percent bonus
depreciation for assets placed in service before January 1, 2005.
And, finally, the taxpayer may elect out of the 30-percent bonus
depreciation and be subject to "normal" tax depreciation.
EXAMPLE (with 50-percent bonus depreciation): On September 1, 2003, a calendar-year reporting business bought and placed in service a $100,000 five-year property class piece of equipment. The business may claim a first-year (2003) depreciation allowance of $60,000 -- i.e., a $50,000 bonus depreciation ($100,000 times 50%) plus a $10,000 normal first-year MACRS depreciation calculated on the new adjusted basis ([$100,000 minus $50,000] times 20%). In the second year (2004), the MACRS depreciation would be $16,000 ([$100,000 minus $50,000] times 32%). And, so on.
In the above example, the "effective" depreciation percentage for the first year is 60% [($50,000 bonus depreciation plus $10,000 normal first-year depreciation) divided by the $100,000 original adjusted basis]. In the second year, the "effective" depreciation is 16.00% [$16,000 divided by $100,000]. And, so on. ( More examples. )
Useful Links
CCH Tax Briefing: Corporate Income Tax and "Bonus" Depreciation.
http://tax.cchgroup.com/Tax-Briefings/2003-Corporate-Tax-Bonus-Depreciation.pdf
Estimated Revenue
Effects of The "Jobs and Growth Tax Relief Reconciliation Act of 2003".
Prepared by the Staff of the Joint Committee on Taxation (May 6,
2003). H.R.
2: Jobs and Growth Tax Relief Reconciliation Act of 2003.
