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On March 9, 2002 President Bush signed the Job Creation and Worker Assistance Act of 2002 (H.R. 3090).  This law has retroactively changed the tax law for prior years including 2001 and future years.  If you have already filed your return for 2001, it may need to be amended.  The main changes in the law are:

• Extension of unemployment benefits for up to 13 weeks
• Business tax breaks
  • Bonus 30% depreciation for certain new property acquired after September 10, 2001 and before September 11, 2004.  Certain property includes:
    • Depreciable property with recovery periods of 20 years or less
    • Computer software, except section 197 software, this would include all retail software
    • Water Utility property
    • Nonresidential leasehold improvements, except enlargements to the building, elevators, escalators, structural components of the building, internal structural framework, and improvements not made for a tenant under a lease (e.g. improvements to common areas).
  • Increase in first year limit for luxury automobiles by $4,600 (for 2001 to $7,660 from $3,060)
  • Carryback of certain net operating losses changed from 2 years to 5 years
• Breaks for New York City and Distressed Areas (New York Liberty Zone)
  • Expanded Work Opportunity credit
  • Bonus 30% depreciation for certain property acquired after September 10, 2001 and before September 11, 2004
  • Special 5-year recovery period for certain leasehold improvements versus the normal 39 year recovery period
  • Increased Section 179 expensing by $35,000 (to $49,000 for 2001 and 2002)
• Technical corrections to prior laws including
  • The deemed sale election as of January 1, 2001 in order to qualify an asset for the special five year capital gain rate of 18% is clarified to require the gain must be included in gross income.  This squashes the common planning idea to elect the deemed sale of your principal residence but pay no tax by using the $250,000 or $500,000 exclusion.
  • Under the 2001 Act, beginning in 2002, an employer could make up to a 25% of qualified pay contribution to a SEP-IRA for an employee but could only deduct up to 15% of qualified pay.  The law has been amended to make the full 25% deductible by the employer.
  • Various technical pension plan changes mostly effective in 2002 but some are retroactive.
• New for 2002 teachers are allowed an "above the line" deduction of up to $250 of teaching supplies.  Teachers who do not itemize or who's expenses fail to exceed 2% of their adjusted gross income are the main beneficiaries.
• Extension of expiring provisions which expired on December 31, 2001
  • Allowance of personal credits against alternative minimum tax to 2002 and 2003
  • Credit for qualified electric vehicles
  • Work opportunity credit
  • Welfare to work credit
  • Archer Medical Savings Accounts

The text of the law, in Adobe Acrobat format.

The Joint Committee on Taxation's explanation, in Adobe Acrobat format.