|
NB Information given here about the economics
and taxation of forestry investments is strictly
for general guidance and does not constitute investment
or professional advice. Prospective or existing
investors are strongly advised to seek professional
advice on all aspects of investment in forestry
and on its taxation, which is complex.
The
Jobs & Growth Tax Relief Reconciliation Act
2003
The
Act impacted timber owners through a lower long-term
capital gains rate, lower marginal rates on ordinary
income and increased deductions for capital investments
by small businesses.
For
ordinary income the 10% and 15% rates stayed the
same. The 27% rate dropped to 25%, 30% to 28%,
35% to 33%, and 38.6% to 35%. These reductions
were effective retroactively to January 1, 2003.
The
maximum rate on net long-term capital gains dropped
from 20% to 15%, and the capital gains rate for
taxpayers in the 10% or 15% ordinary income brackets
fell from 10% to 5%. In 2008 this 5% rate fell
to 0%, but on January 1, 2011 the rate is due
to go back up to the 20% and 10% rates because
of sunset provisions. At the time of writing,
a proposed two-year extension (until end of 2012)
of the tax cuts is due to be debated by the Senate
and House.
In
2005/2006 the Bush administration was trying very
hard to delete the sunset provisions, and prior
to the dramatic reversal of the balance of power
in Congress after the mid-term elections, which
gave the Democratic Party control over both chambers
of Congress for the first time since 1994, was
somewhat successful (for more on which, see below).
Under
certain circumstances the tax on gains on sales
and exchanges of property held for more than five
years was 18% instead of 20%, or 8% instead of
10%. These 5-year gains rates are eliminated.
Deductions
of capital losses against ordinary income were
limited to $3,000 per year for individual taxpayers.
Small businesses could deduct currently instead
of depreciating up to $25,000 worth of qualified
property placed in service during the year, the
Sec. 179 deduction. The amount decreased by $1
for each dollar of qualified expenses over $200,000,
the “phase-out threshold.” The amount
qualifying for deduction increased to $100,000
for years 2003, 2004 and 2005. These amounts were
indexed for inflation in 2004 and 2005. In addition,
the phase-out threshold increased to $400,000.
Dividends
paid by C corporations to stockholders remained
subject to double taxation. The corporation pays
tax at the corporate rate and then pays dividends
from after-tax income. These dividends are then
taxed on the recipient’s tax return at their
individual rate. Effective January 1, 2003 specific
rates applied to dividend income, 5 percent and
15 percent. Thus, long-term capital gains and
dividends will be taxed at the same rate.
The
reduced rates applied from January 1, 2003 to
December 31, 2008. A zero-percent rate will apply
to taxpayers in the 10- and 15-percent tax brackets
for 2008 through 2010.
BACK
TO TOP
|
USA-INVESTMENT-TAX.COM 
