The GO Zone Tax Benefits
Hurricane Katrina touched down on August 29, 2005, it is a day the Gulf Coast will never forget. The path of devastation was from New Orleans to the west all the way east to Mobile, Alabama. The destruction of homes, businesses and other real estate was so huge it prompted President Bush and Congress to enact the Gulf Opportunity Zone Act of 2005 (the GO Zone Act). The GO Zone Act was meant to stimulate investing and business development in the areas hit hardest by Hurricane Katrina. One of those areas is the greater Biloxi region of Mississippi. Before the Hurricane , Biloxi’s population was approximately 50,000, there were 8 casinos located on barges connected to either hotels or some type of permanent establishment on land. Hurricane Katrina pretty much destroyed the entire Biloxi region, including all of the casinos. The destruction and emotional devastation incurred by this beast of a storm is very sad, but there was hope for a brighter economy. The State of Mississippi quickly enacted legislation to allow casinos to build up to 800 feet in from the water line. How big of a deal is that? Well, last time we checked there are now going to be approximately 22 casinos in the Biloxi region. WOW! Now that we know the Biloxi’s economy is on the up swing and many jobs are coming, you should be asking yourself “How can I benefit from this booming economy and the GO Zone Act?”
There are many advantages of the GO Zone Act, but the one that is of most interest to real estate investors is the 50% Bonus Depreciation deduction. If you are already a real estate investor you probably know, whenever you buy a piece of property and rent it out, you’re allowed to depreciate that property. Residential rental properties are depreciated over 27 1/2 years using a straight-line method (this kind of depreciation is a good thing). This means that if you paid $250,000 for a duplex (ignoring the land cost), you would depreciate that over 27 1/2 years, which would generate $9090 of a depreciation deduction every year. The GO Zone act allows you to take an additional 50% first-year bonus depreciation deduction. This means your $9,090 depreciation deduction is now a $134,090 depreciation deduction!
That isn’t even the most exciting part, Congress recognized that by allowing this large depreciation deduction, many properties would generate a huge loss (on paper), so they amended the net operating loss rules to allow you to carry back this loss five years as opposed to the normal two years. You can also carry the loss forward 20 years. If you carry the loss back, it is not an add back for alternative minimum tax purposes.
This is the best tax shelter ever known in our country. This can be a huge benefit for certain people who have a lot of deductions, generate alternative minimum tax or make under $150,000 per year adjusted gross income. You might not fully understand what this means, or you may not know where to start with your GO Zone investing. Call a GO Zone consultant at 561-404-7375.