Go Zone Investment Tax Advantages

GO Zone Bonus Depreciation

The Gulf Opportunity Zone (GO Zone) includes areas along the Florida, Alabama, Mississippi and Louisiana Gulf Coast that were devastated by Hurricane Katrina.  One incentive for investors to stimulate rebuilding in these areas is the 50% bonus depreciation for qualified real property.  Bonus depreciation can result in significant tax savings for those taxpayers eligible for the deduction.

The bonus depreciation is a deduction for 50% of the adjusted basis of qualified GO Zone property acquired after August 27, 2005.   To qualify the real property must be acquired by purchase and placed in service before December 31, 2008. 

Eligible investors are generally those qualified as real estate professionals.  To qualify, more than one-half of their personal services performed in a trade or business must involve real property. Also the individual (or spouse) must perform 750 hours of service during the tax year in real property trade or businesses in which the individual (or spouse) materially participates.

Example 1: Tom is a real estate professional and purchases residential real estate with an adjusted basis of $2,000,000.  Tom’s taxable income before depreciation is $1,000,000 and the income tax is $321,575.  Tom’s GO Zone deduction is $1,000,000 (50% of the adjusted basis of the property).  After the deduction, Tom’s taxable income is -0- and the tax savings is $321,575.

Go Zone deductions not fully absorbed in the current tax year may be carried back five years to recover tax paid in prior years.

Example 2:  Continuing the above example, Julie’s taxable income before depreciation is $600,000 and the income tax is $181,575.  After the deduction, Tom’s taxable income is -0- and the tax savings is $181,575.  The excess GO Zone deduction is $400,000 ($1,000,000 minus $600,000).  The excess deduction can be carried back five years to recover tax paid in that year.  The deduction not fully used in the fifth year can be carried forward to the fourth year, and so forth until fully used, for a refund of taxes paid in those years.

Please contact NCO H Club at 877-373-2805 or join us for an upcoming webinar with a Go Zone CPA to fully understand the legal issues of using the GO Zone Bonus depreciation.  Webinar schedule found at www.ncohclub.com.