WARNING:  We have had numerous complaints about developers in Mississippi for not honoring and performing on contractual agreements with buyers, clients, contractors or vendors.  If you have questions about a developers reputation or have had issues with your developer please contact us to report or to see if class action suit participation may be available.

The following is from the State of Mississippi.

DATE:  February 5, 2009

SUBJECT:  HUD approved waivers for the State of Mississippi

I. Purpose:  The Department of Housing and Urban Development has published a waiver of section 105(a) that allows new housing construction and of section 105(a) (24) to allow homeownership assistance for families whose income is up to 120 percent of the area median income (AMI) and up to 100 percent of housing down payment.  The waiver can be found at http://www.federalregister.gov/inspection.aspx#reg_H.  The Long Term Workforce Housing (LTWH) program is providing the following clarification of the approved waiver and additional regulatory guidance to assist in serving households up to 120 percent.  The State is committed to serving low to moderate income households.  Therefore, all projects shall serve at least 51 percent low to moderate income households.

II. Discussion:

1. The LTWH program will provide direct assistance (homebuyer assistance) to eligible households up to 120 percent of AMI due to the recent waiver.  In addition, that waiver reconfirms the eligibility of new housing construction as an eligible CDBG activity as granted in the original waiver dated June 14, 2006.

2. The LTWH program, as stated in our original and modified action plan, will grant funds to Community Based Development Organizations (CBDO)/Neighborhood Based Development Organizations (NDO).  As a result, any revenue generated through these programs will not be considered program income.  Because the LTWH program is designed to provide affordable housing to the coastal workforce, it qualifies as a community economic development program.  As a result, the CB-grantees DO/NDOs sub are able to carry out their projects under this umbrella.  It is understood that some may carry out neighborhood revitalization or energy conservation projects as well, and these will be documented on a case-by-case basis. Furthermore, these organizations are not considered to be sub-recipients and should be expected to act independently in carrying out their projects.

3. To clarify and document the LTWH programs status as a community economic development program, MDA will provide HUD with a brief document detailing how the LTWH program is eligible for this designation.  This documentation will be sufficient to qualify the projects of all the CBDO/NDOs participating in t he LTWH program.

4. As it pertains to new construction and rehabilitation activities, LTWH is not bound to the low/mod national objective.  Instead, we may use the slum/blight and/or urgent need objectives if there is a clear demonstration of meeting these objectives.  Acquisition, clearance, relocation, historic preservation and building rehabilitation activities which eliminate specific conditions of blight or physical decay on a spot basis not located in a slum or blighted area will meet this same objective. The slum/blight and urgent need objectives are not income qualified.  Specifically, there are single and multi-family housing developments projects currently being funded through LTWH.  These units can be occupied by households up to 80% AMI under low/mod or up to 120% AMI under urgent needs or slum/blight.

5. The number of households in mixed-income developments serving over 120 percent of  AMI will be pro-rated based upon the amount of non-CDBG funds in the project.

6. All projects shall serve at least 51 percent low to moderate income households.  The remaining 49 percent of the households can be up to 120% AMI.

III. Action Needed:  Sub-recipients may request a change in their current contract scope to include households up to 120 percent of the AMI.  The request must be made in writing and forwarded to Lynn Seals, Bureau Manager, P.O. Box 849, Jackson, Mississippi  39205.

IV. Questions:  If you have questions concerning this memorandum, please contact Lynn Seals or Chuck Bearman at (601) 359-2905.

We have had a very busy few weeks since the second round of the Small Rental Assistance Program (SRAP) opened up on October 15th. To all the members that have moved forward we want to personally take a minute and thank you for your support and patience, we know how excited you all are about this investment.

Click here to watch the video

As you know, the coordination efforts between the developer, lender, tax advisor and the MDA is alot of work, but we are committed to making this process as smooth as possible for you. The phenomenal response we have had to this project goes to show that even in these turbulent economic times a quality investment that has strong fundamentals is always in high demand.

For those of you that are still interested and have not yet had the time to connect with us or finish your due diligence we urge you to move forward quickly. Only 24 days remain before the second round of SRAP closes.

Also, don’t forget this investment is a qualified GO Zone rental property. As many of you already know, investing in the GO Zone can save you thousands of dollars on your federal income taxes. If you have not yet scheduled your one-on-one complimentary tax consultation we urge you to do so ASAP.

Call to get all your questions answered on the $73,000 governmental incentive, the development, and schedule a time with our tax advisor. He will specifically show you how much money you can save or get back from the government (amended tax returns).

Since time is running out on this program we will be hosting a live Webinar for our members on Tuesday night the (Nov 25th). We will be answering your questions about the development and the SRAP program. Also presenting will be our expert tax advisor of 33 years.

LIVE WEBINAR EVENT Tuesday November 25th at 9PM EST/8PM CST/7PM MST/6PM PST

REGISTER FOR THE LIVE EVENT AT

https://www1.gotomeeting.com/register/979518618

(NOTE: Enter YAERD or GATEWAY in the Source Code field on the Registration Page)

Spots are limited for the Webinar and the second round is closing soon so Register for the Webinar right now.

If you haven’t watched the short video yet we urge you to do so at:

http://www.gozonegateway.com/go-zone-property/ocean-springs.html

With the lack of positive news in the credit markets, turmoil in the stock markets, and government bailouts for Wall Street, the average investor has taken it on the chin. With the government handing out money to Wall Street CEOs and institutions it would be nice if the small investor on Main Street could get one of these bailouts.

What if there was a way for you to get $73,000 from the government to invest in the #1 Real Estate Market in the U.S.? To good to be true you say? Well the government has already released millions of dollars to every-day investors like you in the first round of the Small Rental Assistance Program and in 48 hours (after one year of waiting) they are opening up the second round. If the government is giving away Billions to Wall Street fat cats, you should get in line on one of the rare opportunities when they offer it out to small Main Street investors as well.

We have spent over a year putting this project together and are giving our investors the first chance at it this week. It will open for reservation on Wednesday October 15th, 2008 at 1pm Eastern time when the Government opens the application process to this program. After this week, we are going to release this opportunity to our national network of brokers and expect it to sell-out within a few weeks. We even have an opportunity available on a limited number of units that is completely contingent upon approval to the government program!

Your investment could yield a 270.4% instant return thanks to this program. If you have $27,000 dollars to invest, you could without risk, get a return of $73,000!

We already have had successful history with this program, as we had over 70 investors get approvals in the first round.

In addition to this awesome government program this investment is in the GO Zone and is eligible for HUGE Federal Tax Benefits known as Bonus Depreciation.  The GO Zone can help you save tens of thousands and maybe even hundreds of thousands of dollars in federal income tax. We provide complimentary consultations with our 33 year veteran CPA to maximize your tax benefit. DO NOT dismiss this Bonus Depreciation Benefit! Most investors invest in the GO Zone just for this benefit alone!  You owe it to yourself to find out exactly how much you will save in taxes, so take advantage of the complimentary one-on-one consultation.

In this financial market, there could not be a better opportunity to put your money into, because the risk is removed from the equation. Have you ever seen an opportunity where the U.S. Government pays 54% annually for 5 years up front? You will probably never see it again in our lifetime.

This is a first come first serve basis for the SRAP, and we expect to sell out this project within weeks, so do not hesitate to contact us at 561-404-7375. We expect you to have questions and urge you to call us with them.

Most people are lucky to get any kind of a positive return in this environment so don’t miss your chance.

We also have a complete due diligence package completed for you to review by clicking here.

The amount eligible to be expensed for a taxable year also can’t exceed the taxable income for a taxable year that is derived from the active conduct of a trade or business. Any amount that is not allowed as a deduction because of the taxable income limitation may be carried forward to succeeding taxable years, subject to similar limitations.

Under the GO Zone Act, the $108,000 maximum amount that a taxpayer may elect to deduct under Section 179 in 2006 and 2007 is increased by the lesser of $100,000 or the cost of qualified Section 179 GO Zone property placed in service during the taxable year. This provision applies with respect to qualified Section 179 GO Zone property acquired on or after Aug. 28, 2005, and placed in service on or before Dec. 31, 2007.

The $430,000 phase-out ceiling for this benefit is also raised substantially under the GO Zone Act. The maximum amount that a taxpayer may elect to deduct under Section 179 is reduced by: the amount by which the cost of qualified Section 179 GO Zone property placed in service during the taxable year exceeds $430,000 (for 2006 and 2007), increased by the lesser of $600,000 or the cost of qualified Section 179 GO Zone property placed in service during the taxable year. Therefore, the total GO Zone capital expenditure ceiling is $1,030,000 for Katrina-related expenditures.

In effect, the maximum $108,000 deduction is increased to $205,000 for qualified GO Zone property placed in service from Aug. 28, 2005, to Dec. 31, 2005, and to $208,000 for property placed in service in tax years beginning in 2006. If total payments placed in service from Aug. 28, 2005, to Dec. 31, 2005, exceed $1,020,000 ($1,030,000 for 2006 property), this provision is not available. This provision has several other limitations including that it does not apply to real property and other Section 179 rules apply.

Amazingly, the project will finish 6 months ahead of schedule.  Approximately 7,200 vehicles are expected to use the 3.4 mile road on a daily basis once finished

Maine’s congressional delegation, particularly Rep. Tom Allen, D-1st District who helped earmark federal funds should be given credit for helping this project become a reality.

The new bypass will connect Route 25 to Route 114 which will be a huge relief to families that bought homes on South Street years ago expecting the traffic to be re-routed with the new bypass.

Many experts believe the new Gorham bypass will be a boon to small businesses around the intersection because currently rush hour traffic makes it difficult to get to them.

There are rumors of a Northern bypass being built, but there isn’t any funding for it yet.

The following article was written by our GO Zone tax advisor.

In my opinion, the requirement for the GO Zone property to be own by someone who is active in a trade or business creates an overall potential for investor benefit but contains two traps for the unwary.

Let’s go back to another section of 2006-77:

SECTION 3. SUBSTANTIALLY ALL AND ACTIVE CONDUCT REQUIREMENTS UNDER section 1400N(d)(2)(A)(ii)
.01 SUBSTANTIALLY ALL REQUIREMENT. Each depreciable property will meet the requirements of section 1400N(d)(2)(A)(ii) if substantially all of the use of the property is in the GO Zone and in the active conduct of a trade of business by the taxpayer in the GO Zone. For this purpose, the term “substantially all” means 80 percent or more during each taxable year. If greater than 20 percent of the use of the property either is outside the counties and parishes designated as being part of the GO Zone or is not in the active conduct of a trade or business by the taxpayer in the GO Zone, then the property is not GO Zone property and is not eligible for the GO Zone additional first year depreciation deduction.

I think there are two traps in this section.

First trap: The first, while a trap, is not that large for the typical real estate investor: The GO Zone property must be used more than 80% inside the GO Zone. This goes back to the discussion in Question 7 where the implied position of the legislation is to keep all of the benefits within the GO Zone.

The examples provided by the IRS relate mostly to a delivery truck which, although purchased by a business in the GO Zone, was not used within the GO Zone for more than 80% of its use. Due to a violation of the use requirement, the IRS disallowed the bonus depreciation.

It appears the typical real estate investor will only purchase portable property for direct use in the real estate and, therefore, it would almost always stay in place in the Go Zone. However, this 80% use factor is important to remember.

Second trap: The second trap is larger and more camouflaged. Consider the following example from Notice 2006-77. I know this is a long quote but it needs to be read and understood.

.02 ACTIVE CONDUCT OF A TRADE OR BUSINESS REQUIREMENT.

(1) TRADE OR BUSINESS DEFINITION. For purposes of section 1400N(d)(2)(A)(ii), the term “trade or business” has the same meaning as in section 162 and the regulations thereunder. Thus, property held merely for the production of income or used in an activity not engaged in for profit (as described in section 183) does not qualify for the GO Zone additional first year depreciation deduction.

(2) ACTIVE CONDUCT. Solely for purposes of section 1400N(d)(2)(A)(ii), the determination of whether a trade or business is actively conducted by the taxpayer is to be made based on all of the facts and circumstances. A taxpayer generally is considered to actively conduct a trade or business if the taxpayer meaningfully
participates in the management or operations of the trade or business. Furthermore, for purposes of section 1400N(d)(2)(A)(ii), a partner, member, or shareholder of a partnership, limited liability company, or S corporation, respectively, is considered to actively conduct a trade or business of the partnership, limited liability company, or S corporation if the partnership, limited liability company, or S corporation meaningfully participates (through the activities performed by itself, or by others on behalf of the
partnership, limited liability company, or S corporation, respectively) in the management or operations of the trade or business. Similar rules apply to other pass-thru entities such as trusts or estates.

(3) EXAMPLES. The following examples illustrate the provisions of section 3.02 of this notice.

(a) EXAMPLE 1. During 2006, MNO, a limited liability company, constructs and places in service a new apartment building in the GO Zone. MNO is treated as a partnership for federal tax purposes. B, a member in MNO, manages and operates this apartment building for MNO. Because B manages and operates the
apartment building for MNO, MNO meaningfully participates in the management and operations of the apartment building. Consequently, all of the use of the apartment building is in the GO Zone and in the active conduct of a trade or business by MNO in the GO Zone. Accordingly, the unadjusted depreciable basis
(as defined in section 1.168(b)-1T(a)(3)) of the apartment building qualifies for the GO Zone additional first year depreciation deduction (assuming all other requirements are met). However, limitation provisions of the Code (for example, section 469) apply and may limit the amount of the GO Zone additional first year depreciation deduction that may be claimed by the members of MNO.

(b) EXAMPLE 2. During 2006, C, an individual, places in service a new restaurant in the GO Zone and employs D to operate it. During 2006, C periodically met with D to review operations relating to the restaurant. C also approved the restaurant’s budget for 2006 that was prepared by D. D performs all the necessary operating functions, including hiring chefs, acquiring the necessary food and restaurant supplies, and writing the
checks to pay all bills and the chefs’ salaries. Based on these facts and circumstances, C meaningfully participates in the management of the restaurant. Consequently, all of the use of the restaurant is in the GO Zone and in the active conduct of a trade or business by C in the GO Zone. Accordingly, the
unadjusted depreciable basis of the restaurant qualifies for the GO Zone additional first year depreciation deduction (assuming all other requirements are met). However, limitation provisions of the Code (for example, section 469) apply and may limit the amount of the GO Zone additional first year depreciation
deduction that may be claimed by C.

(c) EXAMPLE 3. During 2006, PRS, a partnership, constructs and places in service a new small commercial building in the GO Zone and leases it to E, an unrelated party, who uses the building as a fast food restaurant. This building is the only property owned by PRS. The lease agreement between PRS and E is
a triple net lease under which E is responsible for all of the costs relating to the building (for example, paying all taxes, insurance, and maintenance expenses) in addition to paying rent. Because of the triple net lease, PRS does not meaningfully participate in the management or operations of the building and the building is not used in the active conduct of a trade or business by PRS in the GO Zone. Accordingly, the building does not qualify for the GO Zone additional first year depreciation deduction.

(d) EXAMPLE 4. Same facts as Example 3, except that PRS, during 2006, constructs and places in service two other new commercial buildings in the GO Zone and leases these buildings to F, an unrelated party, who uses the two other buildings as office space. The lease agreement between PRS and F is not a triple net lease. G, a partner in PRS, manages and operates the two office buildings for PRS. Because G manages and operates the two office buildings for PRS, PRS meaningfully participates in the management and operations of the two office buildings. Consequently, these two office buildings are used in the active conduct of a trade or business by PRS in the GO Zone. Accordingly, the total unadjusted depreciable basis of the two office buildings leased to F qualifies for the GO Zone additional first year depreciation deduction (assuming all other requirements are met). However, limitation provisions of the Code (for example, section 469) apply and may limit the amount of the GO Zone additional first year depreciation deduction that may be claimed by the partners of PRS with respect to the two buildings leased to F. Further, because the requirements of section 1400N(d)(2)(A)(ii) apply on a property-by-property basis, the building leased to E does not qualify for the GO Zone additional first year depreciation deduction, as provided in Example 3.

What is going on here?

The tax code sometimes defines words differently than we define them for common usage. The entire discussion about active is an example. The code is trying to find a balance between the functions of an investor (mostly passive such as accounting for the investment) and an active role in the investment (such as managing and operating business aspects of the investment). Admittedly, this is a very hard balance to always maintain.

Why does the IRS try and form these definitions? Because the tax benefits for a passive owner are materially weaker than for an active owner. You can really see that difference was you explore the classification matrix between passive and active in the legislations. In the above examples, to simply OWN a building in the GO Zone does not automatically qualify it for GO Zone tax advantages. Some ideas which can be drawn from the above using a building rented to a third party as the example:

1. For a building to qualify as GO Zone-allowable property for the owner, the owner must have a minimum level of involvement in the building.
2. A triple-net lease evidentially causes some problems for the IRS as noted in the above examples. Therefore, I would be very careful in using such a lease for a GO Zone located property.
3. Business entity structure is critical here as is the underlying lease between the owner and the tenant.
4. Even with the same ownership, an owner can find that one building qualifies for GO Zone treatment and another does not so qualify.

Bottom line?

Economic and legal structure is very important here. I would strongly advise that all legal documents (including leases) be reviewed by a component legal advisor to ensure they are in compliance with the GO Zone rules and regulations.

My opinion?

Many taxpayers will be caught in this trap and think just because they have ownership in an otherwise qualifying GO Zone property, that ownership will qualify them for GO Zone tax treatment. They will be very disappointed when they discover they lost their hoped for tax benefits because they did not structure themselves or the investment appropriately.

The folllowing article was written by our GO Zone tax advisor.

My answer to this question…No!

In December of 2007, there were positions offered in tax literature that stated an IRC 1031-exchange from a GO Zone property to a non-GO Zone property would be allowed.

In my opinion, this position was (at best) aggressive.

In December of 2007, my advice to clients was as follows:
• At this time, I would base my economic decisions as if such an exchange would
not be allowed.

• At this time, I would restrict my planning use of IRC 1031-type exchanges between GO Zone properties which is still a rather large base of properties.

• If the IRS changes it general position from its current non-use to allowing GO Zone to non-GO Zone exchanges, a wise economic decision is only heightened.

• If the IRS changes its position, an option was only opened to you, no options were closed.

• If you are participating in a loan-forgiveness program, you need to hold the property for an extended period of time (usually 5 years) and so this issue has some time to play-out.

The tax world can move from development of appropriate tax planning tools to the development of very aggressive schemes to suit specific requests from their clients. The client wants a specific answer and the tax professional will substitute sound professional judgment and assistance to the client to provide such an answer no matter its aggression or risk level and no appropriate concern about its chance of support.

The result of that development are very aggressive programs based on an interplay of the following ideas: (A) Tax laws will change in the future and the client might be a beneficiary of that change, (B) The taxpayer’s return will never be audited on that issue, (C) If audited, the tax professional will somehow be able to win/settle the issue favorably for the client and (D) The tax professional’s opinion is so housed with disclaimers that they are protected from the effects of their aggressive advice.

I think the entire discussion on the use of IRC 1031-type exchanges from GO Zone to non-GO Zone properties is driven by a need for the very aggressive answers demanded by the client rather than providing the client sound tax advice.

In December of 2007, I called the appropriate department at the IRS and requested to speak to the individual which prepared the latest authoritative pronouncement on this question. The individual’s response was as follows:
• The IRS is aware of the debate regarding the use of a Section 1031-exchange from a GO Zone property to a non-GO Zone property.
• The IRS believes a key premise to the GO Zone legislation is the keeping of the GO Zone tax benefits within the GO Zone.
• The IRS is, at the current time, drafting a direct response to this GO Zone to non-GO Zone issue.
• The IRS will not provide any hints of their position on this issue at this time but did reaffirm their position that GO Zone benefits should stay in the GO Zone.
• The IRS appears to be giving tacit approval to the use of IRC 1031-type exchanges where two GO Zone properties are involved.
• There is not a public release date for the release of their position.

The safest tax answer at the present time is if you use an IRC 1031 exchange from a GO Zone status property to a non-GO Zone status property before the end of the depreciation period (use 27.5 years as a good guidance), you should plan on the need to recapture the bonus depreciation as ordinary income at the time of the exchange.

Those who think the answer is to recapture the bonus depreciation as ordinary income first pointed to Section 6 of Notice 2006-67 which is partially reproduced below:

If GO Zone property is no longer GO Zone property in the hands of the same tax payer at any time before the end of the GO Zone property’s recovery period…the tax payer must recapture in the taxable year in which… (it) is no longer GO Zone property the benefit derived from claiming the GO Zone additional first year depreciation…

Notice 2006-67 was replaced by Notice 2006-77 but, in my opinion, the fundamental position of Notice 2006-67 was affirmed.

Notice 2006-77 contains the following language which is very reminiscent of the superseded Notice:

SECTION 6. RECAPTURE RULES UNDER SECTION 1400N(d)(5)

.01 IN GENERAL. Section 1400N(d)(5) provides that for purposes of section 1400N(d), rules similar to the recapture rules under section 179(d)(10) and section 1.179-1(e) apply with respect to any GO Zone
property that ceases to be GO Zone property.

.02 APPLICATION. If GO Zone property is no longer GO Zone property in the hands of the same taxpayer at any time before the end of the GO Zone property’s recovery period as determined under section 167(f)(1) or section 168, as applicable, then the taxpayer must recapture in the taxable year in which the GO Zone property is no longer GO Zone property (the recapture year) the benefit derived from claiming the GO Zone additional first year depreciation deduction for such property. The benefit derived from claiming the GO Zone additional first year depreciation deduction for the property is equal to the excess of the total
depreciation claimed (including the GO Zone additional first year depreciation deduction) for the property for the taxable years before the recapture year over the total depreciation that would have been allowable for the taxable years before the recapture year as a deduction under section 167(f)(1) or section 168, as
applicable, had the GO Zone additional first year depreciation deduction not been claimed (regardless of whether such excess reduced the taxpayer’s tax liability).

Therefore, if I wanted to be beneficial for my clients, I would say IRC 1031-type exchanges appear to result in the recapture of the bonus depreciation when the exchange involves a GO Zone property to a non-GO Zone property.

There was an implied intent of the legislation to keep all of the tax benefits within the GO Zone due to their nature and benefit to the taxpayer. However, that intent is contrary to other parts of the legislation which implied an acknowledged for the need of capital outside of the GO Zone.

On 12 February 2008, the IRS issued Notice 2008-25 that solidified their position: An IRC 1031-exchange between a Go Zone property to a non-Go Zone property cannot occur without a recapture of bonus depreciation. In my mind, this is the practical settlement of the issue.

Why did I include so much background material on this issue?

Because I do not think it will go away and I think taxpayer-owners of GO Zone property are going to be approached with dubious tax schemes to try and avoid the recapture of the bonus depreciation.

Please stay tuned as additional information in this issue unfolds.

The following article was written by our GO Zone tax advisor.

The appropriate use of IRC 1031-type exchanges is a legitimate tax concern as it can materially effect the economics of (1) Developing a portfolio of real estate investments via the deferral of gain and (2) Exiting from real estate investments to a cash position at a future point.

IRC 1031-type exchanges have been a strong tax tool over an extended period of time and it is only logical taxpayers would not like to see it’s use limited to specific geographical areas or the deferral benefits of gain restricted to only a portion of the total gain.

However, this is exactly the position the legislations seem to take and certainly the position which governs most of the IRS’s direction.

In December of 2007, I called the appropriate department at the IRS and requested to speak to the individual which prepared the latest authoritative pronouncement on this question. The individual’s response was as follows:
• The IRS is aware of the debate regarding the use of a Section 1031-exchange from a GO Zone property to a non-GO Zone property.
• The IRS believes a key premise to the GO Zone legislation is the keeping of the GO Zone tax benefits within the GO Zone.
• The IRS is, at the current time, drafting a direct response to this GO Zone to non- GO Zone issue.
• The IRS will not provide any hints of their position on this issue at this time but did reaffirm their position that GO Zone benefits should stay in the GO Zone.
• The IRS appears to be giving tacit approval to the use of IRC 1031-type exchanges where two GO Zone properties are involved.
• There is not a public release date for the release of their position.
• The safest tax answer as of December of 2007 is if you use an IRC 1031 exchange from a GO Zone status property to a GO Zone status property before the end of the depreciation period (use 27.5 years as a good guidance), you will not need to recapture the bonus depreciation as ordinary income at the time of the exchange.

My personal opinion based on the authoritative literature at this time?
An IRC 1031 exchange between GO Zone properties will not result in recapture of the bonus depreciation.

(Please note that this article does not imply an IRC Section 1031-type exchange with some limits cannot occur. The tax issue is whether the GO Zone bonus depreciation will need to be recaptured as ordinary income at the time of the exchange. Note also that this question deals with a current owner of a GO Zone property desiring to perform an IRC 1031-exchange to another property. This question does not discuss the issue of a 1031-exchange from a non-GO Zone property into a GO Zone property.)

1. Additional first-year bonus depreciation of 50% (fifty percent).

2. Increase in expensing of machinery, equipment and (in some cases) software bought
for use in a business from $105,000 to $205,000 and raised the phase-out level from
$420,000 to $1,020,000

3. Extension of net operating loss carryback to 5 years for losses attributable to the
bonus depreciation.

4. Partial expensing for demolition and cleanup costs to 50% of the capitalized costs.

5. Increase in rehabilitation credit from 10% to 13% and for historical buildings from
20% to 23%.

6. No alternative minimum tax (AMT) for bonus depreciation allowed expenses.

7. Some potential relief for forgiveness of debt.

These benefits were granted based on two levels of qualifications. The first level of qualification was the property itself. The legislations created a classification commonly called Go Zone property. To receive the tax benefits granted under the legislations, the property needed to achieve this classification.
The second level of qualification was the owner of the property. Assuming the property was classified Go Zone, then the underlying ownership needed also to be qualified to enjoy the tax benefits granted.
This two-tier qualification system was created apparently to focus and retain the benefits on certain geographical areas, to focus private investment towards certain types of real estate uses and to focus the tax benefits on a narrowly defined group of owners.

The following properties do not generally qualify for GO Zone tax treatment:

1. Private or commercial golf course

2. Country Club

3. Massage Parlor

4. Hot tub facility

5. Suntan facility

6. Property where the principal sale is alcoholic beverages for consumption off premises

7. Property used directly for gambling

8. Property used for animal racing or the on-site viewing of such racing

These are specific exclusions in GO Zone legislation as legislators did not think this type of operation is worthy of GO Zone benefits. But, at times, some of these uses are housed in buildings which would otherwise qualify for GO Zone treatment. The legislation therefore, carved-out some exceptions predominately based on the argument that if the excluded activities were a minor source of income, then the major use of the building would be judged against the criteria for GO Zone treatment. These exceptions needed to be handled on a case-by-case basis.