On March 9th, President Bush signed into law The Job Creation and Worker Assistance Act of 2002. Highlights of the legislation:
Bonus depreciation – For most NEW depreciable assets (other than buildings) placed in service after September 10, 2001 and before September 11, 2004, 30% of the cost may be expensed immediately, with the balance recovered under the regular depreciation rules. This special first-year deduction applies both for regular tax and alternative minimum tax. The assets acquired must be new. Previously used property is not eligible. For autos and light trucks, for which first year depreciation would otherwise be limited to $4,600 under the so-called “luxury automobile rules”, a deduction of up to $7,660 may be taken.
Net operating loss carryback period increased to 5 years – Legislation enacted in 1997 reduced the available period for carry back of net operating losses (NOLs) from 3 years to 2 years. The new legislation increases the carryback period to 5 years for losses incurred in tax years ending in 2001 and 2002. Accordingly, an operating loss incurred in 2001 can now be carried back to 1996 – 2000, rather than being limited to 1999 and 2000.
Increase in SEP deduction – For 2002, the maximum contribution that can be made to a SEP retirement plan is increased to the lesser of 25% of compensation (20% for self-employed persons) or $40,000. This change is designed to put SEPs on the same footing as other qualified retirements with respect to the increases to allowable contributions made by 2001 legislation.
Some of the provisions in this 2002 tax act are retroactive to 2001, and will in some cases affect income tax returns which were completed prior to the enactment of the legislation. Accordingly, in some cases, returns will need to be amended in order to take advantage of the favorable changes.
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.