Stimulus Provided by GO Zone Act (GO Zone Bonus Depreciation)
Update Notice (01/18/2011): This article was written after the GO Zone Act was passed in late 2005. The tax incentives have been extended through 12/31/2011 since this article has been written. The concepts are the same, but the deadlines have changed. Go Zone benefits end as of December 31, 2011.
The Gulf Opportunity Zone Act of 2005, often referred to as the "GO Zone Act", (H.R. Bill 4440 passed by Congress on December 16, 2005, and signed into law by President George W. Bush on December 21, 2005), set in place certain tax incentives and bond provisions that are designed to help rebuild the local and regional economies devastated by hurricanes Katrina and Rita.
The GO Zone Act provides several key income tax benefits and incentives to real estate investors who invest in real estate located within the GO Zone geographic areas in order to encourage rebuilding, reinvestment and spur economic activity and growth in the areas affected by hurricanes Katrina, and Rita.
Additional First Year Bonus Depreciation
Section 1400N allows taxpayers an additional first year depreciation allowance in the amount of fifty percent (50%) of the adjusted basis of qualified GO Zone property, including non-residential real property and residential rental property used in conducting an active trade or business located within the GO Zone. In order to be eligible for the increased depreciation allowance, the property must have been purchased on or after August 28, 2005 and must be put into service before December 31, 2008.
Increased Rehabilitation Credit
Under Section 1400N of the Act, the rehabilitation credit as provided under Section 47(a)(1) is increased to thirteen percent (13%) for qualified rehabilitation expenditures on standard structures, and twenty-six (26%) for qualified rehabilitation expenditures on certified historic structures. In order to be eligible for this increased deduction, the qualified expenditures must be made by the taxpayer between August 28, 2005 and December 31, 2008.
Fifty Percent Demolition Deduction
Section 1400N allows taxpayers to deduct fifty percent (50%) of the otherwise capitalized cost of debris removal from or demolition of structures on real property located in the GO Zone. In order to be eligible for the increased deduction, the property must be held by the taxpayer for use in a trade or business, for production of income, or as inventory in the hands of the taxpayer, and the cost must be incurred or paid between August 28, 2005 and December 31, 2007.
Increased Section 179 Expensing
Section 1400N allows for an increase in the maximum expensing permissible under Section 179, raising the limitation to the lesser of $100,000 or the cost of qualified Section 179 GO Zone property placed into service for that taxable year, and increasing the “phase out” point for the expensing allowance to $600,000 or the cost of qualified Section 179 GO Zone property placed into service in that taxable year. To be eligible the property must have been purchased on or after August 28, 2005 and placed into service on or prior to December 31, 2008.
Increased specified liability losses
Section 1400N provides that taxpayers who suffered a specified liability to a public utility property as defined by Section 172(f)(1)(A) under Hurricane Katrina may carry the losses back on their returns for five years (5), but must reduce their losses by any gain recognized from the involuntary conversion of the property in the GO Zone.
Extension to elect to deduct environmental remediation costs
Section 1400N provides an additional two year (2) extension for election to deduct costs associated with environmental remediation costs spent on qualified contaminated sites within the GO Zone, extending the election period until December 31, 2007.
Depreciation Recapture of Bonus Depreciation
Disposing of real estate located within the GO Zone and acquiring replacement property outside of the GO Zone through a 1031 exchange will result in the recognition of recature of the bonus depreciation taken when the GO Zone property was acquired. See IRS Notice 2008-25.
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