Economic Growth Encouraged by GO Zone Act

To encourage reinvestment and spur economic growth in the areas affected by Hurricanes Wilma, Katrina, and Rita, President Bush signed into law the “GO Zone Act” (Pub. L. No.  109-135, herein called “the Act”), which provides several key tax benefits of interest to real estate investors that make investment in the area attractive.

Additional first year 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.

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