Please keep in mind that this covers only the highlights of the most important changes in the new law. Please consult your tax advisor for more details on how you may be affected, and whether immediate action is needed to take advantage of the tax breaks in this important tax legislation.
Research credit.
Under pre-Act law, the research credit terminated
for amounts paid or incurred after June 30, 2004. Under the Act, the credit is
extended for amounts paid or incurred after June 30, 2004 and before 2006.
Work opportunity tax credit.
Under pre-Act law, this credit did not apply for
wages paid or incurred to a qualified individual who began work after 2003.
Under the Act, the credit is extended for wages paid or incurred for individuals
beginning work after 2003 and before 2006.
Welfare-to-work credit.
Under pre-Act law, this credit did not apply for
wages paid or incurred to a qualified individual who began work after 2003.
Under the Act, the credit is extended for wages paid or incurred for individuals
beginning work after 2003 and before 2006.
Enhanced deduction for a corporation's
qualified computer deductions.
Under pre-Act law, the enhanced deduction was not
available for contributions made in tax years beginning after 2003. Under the
Act, the enhanced deduction for qualified computer contributions is extended for
contributions made in tax years beginning after 2003 and before 2006.
Expensing of environmental remediation costs.
Under pre-Act law, the elective expensing option
was not available for expenses paid or incurred after 2003. Under the Act, the
election to treat qualified environmental remediation expenses is extended for
expenses paid or incurred after 2003 and before 2006.
Credit for producing electricity from certain
renewable resources.
Under pre-Act law, the credit was not available for
facilities placed in service after 2003. Under the Act, the renewable
electricity production credit is extended, effective for facilities placed in
service after 2003 and before 2006.
Suspension of the net-income limitation on
percentage depletion for marginal wells.
Under pre-Act law, the 100%-of-taxable-income limit
didn't apply to so much of the depletion allowance as is determined under the
rules relating to oil and gas produced from marginal properties for any tax year
beginning before 2004. Under the Act, the suspension of the 100%-of-net-income
limit for marginal wells is extended for tax years beginning after 2003 and
before 2006.
Credit for qualified electric vehicles.
Under pre- Act law, the otherwise allowable credit
was reduced by 25% (25% phasedown) for property placed in service in 2004, 50%
(50% phasedown), if placed in service in 2005, and 75% (75% phasedown), if
placed in service in 2006. The credit doesn't apply for vehicles placed in
service after 2006. Under the Act, the otherwise allowable credit for a
qualified electric vehicle is available in full for vehicles purchased in 2004
and 2005. In other words, the Act repeals the 25% phasedown of the credit for
2004 and the 50% phasedown for 2005.
Deduction for qualified clean fuel property.
Under pre-Act law, the deduction limits were
reduced by 25% (25% phasedown), for property placed in service in 2004, 50% (50%
phasedown), if placed in service in 2005, 75% (75% phasedown), if placed in
service in 2006, and 100%, if placed in service after 2006. Under the Act, the
otherwise allowable deduction for qualified clean fuel property is available in
full for 2004 and 2005. In other words, the Act repeals the 25% phasedown of the
deduction for 2004 and the 50% phasedown for 2005.
Indian employment tax credit.
Under pre-Act law, the employer's wage credit for
employment of certain Native Americans would have expired on Dec. 31, 2004. The
Act extends the wage credit through tax years beginning before Jan. 1, 2006.
Accelerated depreciation for business
property on Indian reservations.
Under pre-Act law, special depreciation recovery
periods apply to qualified Indian reservation property placed in service after
Dec. 31,1993 and before Jan. 1, 2005. The Act extends the eligibility for the
special depreciation periods to property placed in service before Jan.1, 2006.
Parity in application of certain limits to
mental health benefits.
The Act extends through Dec. 31, 2005 the rules
prohibiting group health plans providing both medical and surgical benefits and
mental health benefits from imposing aggregate lifetime or annual dollar limits
on mental health benefits that are not also imposed on substantially all medical
and surgical benefits.
Archer medical savings accounts (MSAs).
Under pre-Act law, no new contributions could be
made to Archer MSAs after 2003, except by or on behalf of individuals who
previously had Archer MSA contributions, and employees who are employed by a
participating employer. The Act extends Archer MSAs through 2005.
Nonrefundable personal credits allowed
against regular and AMT tax liability.
Under pre-Act law, for tax years beginning after
2003, the combined total of nonrefundable personal credits (other than the
adoption credit, the child credit, and the credit for elective deferrals and IRA
contributions (the saver's credit)) could not be used as an offset against
alternative minimum tax (AMT). Under the Act, for tax years beginning in 2004
and 2005, all of the otherwise allowable nonrefundable personal credits (not
just the adoption credit, child tax credit and saver's credit) may reduce AMT.
Foreign tax credit.
The total amount of the foreign tax credit a
taxpayer may claim is limited based in part on the taxpayer's U.S. tax
liability. For tax years beginning in 2003, an individual's U.S. tax for this
purpose was determined without regard to nonrefundable personal credits. The Act
adds tax years beginning in 2004 and 2005 to those years in which an
individual's U.S tax liability isn't reduced by nonrefundable personal credits,
for purposes of computing the foreign tax credit.
Above-the-line educators' deduction.
Under pre-Act law, the deduction was not available
for tax years beginning after 2003. Under the Act, the above-the-line deduction
for qualifying expenses of eligible educators is extended for tax years
beginning during 2004 or 2005.