Monday Coffee With Al & Dee

The Gulf Opportunity Zone (Go Zone) Act of 2005 was created after Hurricane Katrina devastaded many Gulf Coast areas. There is still time to take advantage of these opportunities and it is still is a fantastic opprtunity that can be taken of either with or without IRA funds.

  

MISSISSIPPI GULF COAST — A key tax incentive designed to spur rebuilding efforts in the areas hardest hit by Hurricane Katrina is extended for two years by legislation introduced by Sen. Roger Wicker (R-Miss.) and Thad Cochran (R-Miss.).

The GO Zone’s bonus depreciation deduction has been utilized by investors and developers in projects across the Gulf Coast. The incentive is available to projects of all sizes, from manufacturing plants, hotels, and office buildings to retail stores and apartment complexes. Some if the deductions include:

50% Bonus Depreciation

The GO Zone Act allows for a significant acceleration of the normal depreciation deduction by allowing a bonus depreciation deduction in the first year Qualified GO Zone Property is placed in service equal to 50% of its cost, in addition to the normal depreciation deduction for the balance of such costs.

The bonus depreciation can be used for investments in Qualified GO Zone property, which must meet the following four elements: (1) Eligible property (generally, equipment, non-residential real property or residential rental property); (2) “substantially all” of the use of which is in an “active trade or business” in the Go Zone; (3) the original use of which began in the GO Zone on or after August 28, 2005; and (4) which was acquired by “purchase” for which there was no “written binding contract” for its acquisition in effect before August 28, 2005.

5-Year Net Operating Loss (NOL) Carryback

Recognizing deductions generated by the 50% bonus depreciation may exceed current year income, Congress expanded the opportunity for businesses in the GO Zone to carry back their net operating losses. The time period for the NOL carryback was extended from 2 years to 5 years, and businesses may carry forward NOLs for up to 15 years. This may enable a business to convert operating losses into refunds for taxes previously paid.

Tax-Exempt, Private-Activity “Go Bonds”

Tax-exempt, private-activity bonds have now been authorized to finance development of a wide array of commercial projects in the Zone on or after August 28, 2005. Mississippi may issue in excess of $4.9 billion in tax-exempt “GO Bonds,” while Louisiana may issue nearly $7.9 billion, and Alabama may issue in excess of $2.1 billion.

Tax-Exempt, Private Activity Go Bonds Permit Use Of Additional State-Law Incentives In Mississippi

If properly structured, projects financed with tax-exempt GO Bonds can be exempt from the sales and use tax (generally 7%) and, with proper planning, can avoid a portion of the contractor’s tax (the 3½% tax on component materials and on design services).

100% Deduction for Qualifying Tangible Personal Property for Small Businesses

The amount small businesses are permitted under Section 179 to expense, rather than depreciate, for investments in qualifying tangible personal property and computer software placed in service in the Zone has been increased by $100,000 to $208,000. The placement in service dates are the same as those that apply to bonus depreciation. The investment ceiling limit for eligible property has been increased by $600,000 to $1,030,000.

Demolition and Cleanup Expenses May Be Expensed
Under existing law, the cost of demolition generally is added to the business owner’s basis in the underlying land and cannot be recovered until the property is sold. The GO Zone Act allows businesses to expense 50% of their demolition and cleanup expenses incurred through 2007. 

Please contact your CPA or financial advisor to see if you qualify for a Go Zone Exemption. Some of these deductions may have been expanded and/or deleted – We are not financial advisors.