Gulf Opportunity Zone Act of 2005

What is the GO Zone?

The Gulf Opportunity Zone Act of 2005 (H.R. 4440 passed by Congress on Dec. 16, 2005, and signed by President Bush on Dec. 21, 2005) establishes tax incentives and bond provisions to rebuild the local and regional economies devastated by hurricanes Katrina and Rita. The act is commonly referred to as the "GO Zone Act" and encompasses the areas included in the Federally declared disaster areas of the Gulf Coast after Katrina.

Bond Financing available through the GO Zone.

An integral part of the federal assistance made available in the GO Zone to support the revitalization of the regional economies impacted by hurricanes Katrina and Rita is a new category of tax-exempt private activity bonds referred to in the GO Zone Act as "Gulf Opportunity Zone Bonds."

Gulf Opportunity Zone Bonds present a unique opportunity for private business owners and corporations to borrow capital at very favorable tax-exempt rates to acquire, construct, reconstruct or renovate non-residential real property, qualified residential rental projects, and public utility property in the GO Zone.

Bonus Depreciation available through the GO Zone.

Under present law, a taxpayer is allowed to recover, through annual depreciation deductions, the cost of certain property used in a trade or business or for the production of income. The amount of the depreciation deduction allowed with respect to tangible property for a taxable year is determined under the modified accelerated cost recovery system (MACRS).

Most new business equipment can be either depreciated over its class life or expensed immediately under Internal Revenue Code Section 179. Under the GO Zone Act, taxpayers are now allowed an additional depreciation deduction equal to 50% of the depreciable basis of qualified Gulf Opportunity Zone property for the first year the property is placed in service. This additional first-year depreciation deduction is calculated after any Section 179 deduction, but before the regular depreciation deduction. The following conditions must exist in order to qualify for this additional depreciation:

All property acquired must be qualified GO Zone property (view the list below).
Substantially all of the use of the property must be in the GO Zone and be in the active conduct of the taxpayer's trade or business. (Rental Properties qualify)
The original use of the property in the GO Zone must commence with the taxpayer on or after Aug. 28, 2005 (but the property may have been used property outside of the GO Zone prior to the taxpayer's acquisition).
Must be placed in service before Dec. 31, 2008, for residential and non-residential real property and Dec. 31, 2007, for all other property.
Must elect out if not deducting in the current year.
No Alternative Minimum Tax depreciation adjustment.

Qualified property for the GO Zone bonus deduction includes:

Water/utility property
Computer software other than software that should be amortized over 15 years
Tangible personal property with a MACRS or ADS recovery period of 20 years or less
Qualified leasehold improvement property
Non-residential real property
Residential real property

The GO Zone Act contains several other benefits for the savvy investor.

We can provide you with more information and we will be glad to refer you to a local CPA that can discuss this further.

If you would like more information please contact Chuck Barnes with REMAX GULF PROPERTIES at 251-540-8888.

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