If you thought that a good opportunity in real estate investing today consists of getting a property that isn't sinking in value faster than a sumo wrestler in quicksand, then the chances are you haven't looked at "the GO Zone".
When Hurricane Katrina hit the country in August of 2005 it was one of the the most devastating natural disasters the country has ever experienced. The devastation had a far reaching impact on the affected states' economy. In reaction to this, the Congress approved the house bill number HR 4440 on December 16, 2005 which was days later signed by President Bush. HR 4440, otherwise known as the Gulf Opportunity Zone Act of 2005 or the GO Zone Act, offers several tax benefits to properties built and placed into rental service in the GO Zone region after the hurricanes. The incentives are being offered by the government in an effort to revive the socio-economic growth that had begun prior to the storms.
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.
The opportunity to use the bonus depreciation is going to go away however. Qualified GO Zone property must be placed in service by December 31, 2007 for personal property and on or before December 31, 2008 for real property. The State of Mississippi has extended the GO Zone deduction for the coastal counties of Harrison, Jackson, Hancock, and Pearl River. This extension is in effect until December 31, 2010. The primary reasons for this are two-fold. The first being that this was ground zero for Katrina. The second reason is that prior to Katrina the Biloxi/Gulfport region was experiencing some the best growth in the nation, jobs were being created, properties were appreciating, tourism and gaming were flourishing. It was felt that this incentive would help to continue the trend.
In addition to the normal depreciation deduction for the balance of such costs. This benefit is available to businesses of all sizes, and there is no dollar cap on the total amount of bonus depreciation that can be claimed. 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.
The 50% bonus depreciation is available for costs involving new construction and for rebuilding projects including replacement, renovation or rehabilitation of existing property treated as separate property for purposes of the GO Zone Act. Opt-outs of special depreciation allowance are allowed by asset class.
There are some restrictions on the use of bonus depreciation. "If any portion of property is financed with tax-exempt bonds, that entire property is ineligible for bonus deprecation. Gaming property is excluded, as is property used in connection with any private or commercial golf course, country club or liquor store."
There are many builders/developers out on the ground as of right now, but only a handful who are doing things the right way. We consider a different type of product (ie. not a 1200 sq ft single family home!) an eye catching, well designed and comfortable attached villa to offer the best possible return on investment. More GO Zone information and other projects can be found at http://themoneytrein.com
Read or download the entire IRS Statutes.pdf
Have a great day!
Comments (0)Subscribe to CommentsComment