Pub.L. 108-028 Concerning participation of Taiwan in the World Health Organization. <> ...

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                purposes of this subsection, the term `50-percent bonus 
                depreciation property' means property described in 
                paragraph (2)(A)(i)--
                          ``(i) the original use of which commences with 
                      the taxpayer after May 5, 2003,
                          ``(ii) which is acquired by the taxpayer after 
                      May 5, 2003, and before January 1, 2005, but only 
                      if no written binding contract for the acquisition 
                      was in effect before May 6, 2003, and
                          ``(iii) which is placed in service by the 
                      taxpayer before January 1, 2005, or, in the case 
                      of property described in paragraph (2)(B) (as 
                      modified by subparagraph (C) of this paragraph), 
                      before January 1, 2006.
                    ``(C) Special rules.--
                Rules <<NOTE: Applicability.>> similar to the rules of 
                subparagraphs (B) and (D) of paragraph (2) shall apply 
                for purposes of this paragraph; except that references 
                to September 10, 2001, shall be treated as references to 
                May 5, 2003.
                    ``(D) Automobiles.--Paragraph 
                (2)(E) <<NOTE: Applicability.>> shall be applied by 
                substituting `$7,650' for `$4,600' in the case of 50-
                percent bonus depreciation property.
                    ``(E) Election of 30-percent bonus.--If a taxpayer 
                makes an election under this subparagraph with respect 
                to any class of property for any taxable year, 
                subparagraph (A)(i) shall not apply to all property in 
                such class placed in service during such taxable 
                year.''.

     (b) Extension of Certain Dates for 30-Percent Bonus Depreciation 
Property.--
            (1) Portion of basis taken into account.--
                    (A) Subparagraphs (B)(ii) and (D)(i) of section 
                168(k)(2) are each amended by striking ``September 11, 
                2004'' each place it appears in the text and inserting 
                ``January 1, 2005''.

[[Page 117 STAT. 757]]

                    (B) Clause (ii) <<NOTE: 26 USC 168.>> of section 
                168(k)(2)(B) is amended by striking ``pre-september 11, 
                2004'' in the heading and inserting ``pre-january 1, 
                2005''.
            (2) Acquisition date.--Clause (iii) of section 168(k)(2)(A) 
        is amended by striking ``September 11, 2004'' each place it 
        appears and inserting ``January 1, 2005''.
            (3) Election.--Clause (iii) <<NOTE: Applicability.>> of 
        section 168(k)(2)(C) is amended by adding at the end the 
        following: ``The preceding sentence shall be applied separately 
        with respect to property treated as qualified property by 
        paragraph (4) and other qualified property.''.

    (c) Conforming Amendments.--
            (1) The subsection heading for section 168(k) is amended by 
        striking ``September 11, 2004'' and inserting ``January 1, 
        2005''.
            (2) The heading for clause (i) of section 1400L(b)(2)(C) is 
        amended by striking ``30-percent additional allowance property'' 
        and inserting ``Bonus depreciation property under section 
        168(k)''.

    (d) Effective Date.--The <<NOTE: Applicability. 26 USC 168 
note.>> amendments made by this section shall apply to taxable years 
ending after May 5, 2003.

SEC. 202. INCREASED EXPENSING FOR SMALL BUSINESS.

    (a) In General.--Paragraph (1) of section 179(b) (relating to dollar 
limitation) is amended to read as follows:
            ``(1) Dollar limitation.--The aggregate cost which may be 
        taken into account under subsection (a) for any taxable year 
        shall not exceed $25,000 ($100,000 in the case of taxable years 
        beginning after 2002 and before 2006).''.

    (b) Increase in Qualifying Investment at Which Phaseout Begins.--
Paragraph (2) of section 179(b) (relating to reduction in limitation) is 
amended by inserting ``($400,000 in the case of taxable years beginning 
after 2002 and before 2006)'' after ``$200,000''.
    (c) Off-the-Shelf Computer Software.--Paragraph (1) of section 
179(d) (defining section 179 property) is amended to read as follows:
            ``(1) Section 179 property.--For purposes of this section, 
        the term `section 179 property' means property--
                    ``(A) which is--
                          ``(i) tangible property (to which section 168 
                      applies), or
                          ``(ii) computer software (as defined in 
                      section 197(e)(3)(B)) which is described in 
                      section 197(e)(3)(A)(i), to which section 167 
                      applies, and which is placed in service in a 
                      taxable year beginning after 2002 and before 2006,
                    ``(B) which is section 1245 property (as defined in 
                section 1245(a)(3)), and
                    ``(C) which is acquired by purchase for use in the 
                active conduct of a trade or business.
        Such term shall not include any property described in section 
        50(b) and shall not include air conditioning or heating 
        units.''.

    (d) Adjustment of Dollar Limit and Phaseout Threshold for 
Inflation.--Subsection (b) of section 179 (relating to limitations) is 
amended by adding at the end the following new paragraph:
            ``(5) Inflation adjustments.--

[[Page 117 STAT. 758]]

                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 2003 and before 2006, 
                the $100,000 and $400,000 amounts in paragraphs (1) and 
                (2) shall each be increased by an amount equal to--
                          ``(i) such dollar amount, multiplied by
                          ``(ii) the cost-of-living adjustment 
                      determined under section 1(f)(3) for the calendar 
                      year in which the taxable year begins, by 
                      substituting `calendar year 2002' for `calendar 
                      year 1992' in subparagraph (B) thereof.
                    ``(B) Rounding.--
                          ``(i) Dollar limitation.--If the amount in 
                      paragraph (1) as increased under subparagraph (A) 
                      is not a multiple of $1,000, such amount shall be 
                      rounded to the nearest multiple of $1,000.
                          ``(ii) Phaseout amount.--If the amount in 
                      paragraph (2) as increased under subparagraph (A) 
                      is not a multiple of $10,000, such amount shall be 
                      rounded to the nearest multiple of $10,000.''.

    (e) Revocation of Election.--Paragraph (2) <<NOTE: 26 USC 179.>> of 
section 179(c) (relating to election irrevocable) is amended by adding 
at the end the following new sentence: ``Any such election or 
specification with respect to any taxable year beginning after 2002 and 
before 2006 may be revoked by the taxpayer with respect to any property, 
and such revocation, once made, shall be irrevocable.''.

    (f) Effective Date.--The <<NOTE: Applicability. 26 USC 179 
note.>> amendments made by this section shall apply to taxable years 
beginning after December 31, 2002.

      TITLE III--REDUCTION IN TAXES ON DIVIDENDS AND CAPITAL GAINS

SEC. 301. REDUCTION IN CAPITAL GAINS RATES FOR INDIVIDUALS; REPEAL OF 5-
            YEAR HOLDING PERIOD REQUIREMENT.

    (a) In General.--
            (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by 
        striking ``10 percent'' and inserting ``5 percent (0 percent in 
        the case of taxable years beginning after 2007)''.
            (2) The following sections are each amended by striking ``20 
        percent'' and inserting ``15 percent'':
                    (A) Section 1(h)(1)(C).
                    (B) Section 55(b)(3)(C).
                    (C) Section 1445(e)(1).
                    (D) The second sentence of section 7518(g)(6)(A).
                    (E) The second sentence of section 607(h)(6)(A) of 
                the Merchant <<NOTE: 46 USC app. 1177.>> Marine Act, 
                1936.

    (b) Conforming Amendments.--
            (1) Section 1(h) is amended--
                    (A) by striking paragraphs (2) and (9),
                    (B) by redesignating paragraphs (3) through (8) as 
                paragraphs (2) through (7), respectively, and
                    (C) by redesignating paragraphs (10), (11), and (12) 
                as paragraphs (8), (9), and (10), respectively.
            (2) Paragraph (3) of section 55(b) is amended by striking 
        ``In the case of taxable years beginning after December 31, 
        2000, rules similar to the rules of section 1(h)(2) shall apply 
        for purposes of subparagraphs (B) and (C).''.

[[Page 117 STAT. 759]]

            (3) Paragraph (7) <<NOTE: 26 USC 57.>> of section 57(a) is 
        amended--
                    (A) by striking ``42 percent'' the first place it 
                appears and inserting ``7 percent'', and
                    (B) by striking the last sentence.

    (c) Transitional Rules <<NOTE: 26 USC 1 note.>> for Taxable Years 
Which Include May 6, 2003.--For purposes of applying section 1(h) of the 
Internal Revenue Code of 1986 in the case of a taxable year which 
includes May 6, 2003--
            (1) The amount of tax determined under subparagraph (B) of 
        section 1(h)(1) of such Code shall be the sum of--
                    (A) 5 percent of the lesser of--
                          (i) the net capital gain determined by taking 
                      into account only gain or loss properly taken into 
                      account for the portion of the taxable year on or 
                      after May 6, 2003 (determined without regard to 
                      collectibles gain or loss, gain described in 
                      section 1(h)(6)(A)(i) of such Code, and section 
                      1202 gain), or
                          (ii) the amount on which a tax is determined 
                      under such subparagraph (without regard to this 
                      subsection),
                    (B) 8 percent of the lesser of--
                          (i) the qualified 5-year gain (as defined in 
                      section 1(h)(9) of the Internal Revenue Code of 
                      1986, as in effect on the day before the date of 
                      the enactment of this Act) properly taken into 
                      account for the portion of the taxable year before 
                      May 6, 2003, or
                          (ii) the excess (if any) of--
                                    (I) the amount on which a tax is 
                                determined under such subparagraph 
                                (without regard to this subsection), 
                                over
                                    (II) the amount on which a tax is 
                                determined under subparagraph (A), plus
                    (C) 10 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                      under such subparagraph (without regard to this 
                      subsection), over
                          (ii) the sum of the amounts on which a tax is 
                      determined under subparagraphs (A) and (B).
            (2) The amount of tax determined under subparagraph (C) of 
        section (1)(h)(1) of such Code shall be the sum of--
                    (A) 15 percent of the lesser of--
                          (i) the excess (if any) of the amount of net 
                      capital gain determined under subparagraph (A)(i) 
                      of paragraph (1) of this subsection over the 
                      amount on which a tax is determined under 
                      subparagraph (A) of paragraph (1) of this 
                      subsection, or
                          (ii) the amount on which a tax is determined 
                      under such subparagraph (C) (without regard to 
                      this subsection), plus
                    (B) 20 percent of the excess (if any) of--
                          (i) the amount on which a tax is determined 
                      under such subparagraph (C) (without regard to 
                      this subsection), over
                          (ii) the amount on which a tax is determined 
                      under subparagraph (A) of this paragraph.
            (3) For <<NOTE: Applicability.>> purposes of applying 
        section 55(b)(3) of such Code, rules similar to the rules of 
        paragraphs (1) and (2) of this subsection shall apply.

[[Page 117 STAT. 760]]

            (4) In applying this subsection with respect to any pass-
        thru entity, the determination of when gains and losses are 
        properly taken into account shall be made at the entity level.
            (5) For purposes of applying section 1(h)(11) of such Code, 
        as added by section 302 of this Act, to this subsection, 
        dividends which are qualified dividend income shall be treated 
        as gain properly taken into account for the portion of the 
        taxable year on or after May 6, 2003.
            (6) Terms used in this subsection which are also used in 
        section 1(h) of such Code shall have the respective meanings 
        that such terms have in such section.

    (d) Effective <<NOTE: Applicability. 26 USC 1 note.>> Dates.--
            (1) In general.--Except as otherwise provided by this 
        subsection, the amendments made by this section shall apply to 
        taxable years ending on or after May 6, 2003.
            (2) Withholding.--The amendment made by subsection (a)(2)(C) 
        shall apply to amounts paid after the date of the enactment of 
        this Act.
            (3) Small business stock.--The amendments made by subsection 
        (b)(3) shall apply to dispositions on or after May 6, 2003.

SEC. 302. DIVIDENDS OF INDIVIDUALS TAXED AT CAPITAL GAIN RATES.

    (a) In General.--Section <<NOTE: 26 USC 1.>> 1(h) (relating to 
maximum capital gains rate), as amended by section 301, is amended by 
adding at the end the following new paragraph:
            ``(11) Dividends taxed as net capital gain.--
                    ``(A) In general.--For purposes of this subsection, 
                the term `net capital gain' means net capital gain 
                (determined without regard to this paragraph) increased 
                by qualified dividend income.
                    ``(B) Qualified dividend income.--For purposes of 
                this paragraph--
                          ``(i) In general.--The term `qualified 
                      dividend income' means dividends received during 
                      the taxable year from--
                                    ``(I) domestic corporations, and
                                    ``(II) qualified foreign 
                                corporations.
                          ``(ii) Certain dividends excluded.--Such term 
                      shall not include--
                                    ``(I) any dividend from a 
                                corporation which for the taxable year 
                                of the corporation in which the 
                                distribution is made, or the preceding 
                                taxable year, is a corporation exempt 
                                from tax under section 501 or 521,
                                    ``(II) any amount allowed as a 
                                deduction under section 591 (relating to 
                                deduction for dividends paid by mutual 
                                savings banks, etc.), and
                                    ``(III) any dividend described in 
                                section 404(k).
                          ``(iii) Coordination with section 246(c).--
                      Such term shall not include any dividend on any 
                      share of stock--
                                    ``(I) with respect to which the 
                                holding period requirements of section 
                                246(c) are not met (determined by 
                                substituting in section 246(c)(1) `60 
                                days' for `45 days' each place it 

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