In December of 2005, Congress and President Bush passed the Gulf Opportunity Zone Act.  (Click Here to get the official IRS Publication 4492).  Also known as the Go Zone, this allows for significant economic incentives for real estate investors in regards to their income taxes. The Go Zone is available in designated areas along the Gulf Coast. Recently, Congress has extended the Go Zone from it's previous deadline of December 31, 2008, to December 31, 2010 ONLY in a few select counties in Mississippi including Harrison, Jackson, Hancock, and Stone County. All other current designations expire on December 31, 2008.

The Go Zone in layman’s terms is an income tax incentive to qualified investors.  See below for criteria, and consult your CPA for verification.  The Go Zone allows investors that apply new rental property to the designated regions to be awarded a Bonus Depreciation.  In typical real estate depreciation, it is calculated by using the 27.5 year straight line method, giving you a small annual tax write off.  The Go Zone Bonus Depreciation allows you to accelerate the depreciation on the rental property an additional 50% just after the first year of ownership.  For instance on a home that is $150,000 of structure value, lets assume your normal depreciation is $3,000, so now you have $147,000 as a depreciable amount.  In addition to the $3,000, you may accelerate it 50% giving you a bonus of half of $147,000 which is $73,500.  Your total depreciation after just the first year of owning this property is $76,500.  As you and your accountant are the only ones that know your tax bracket, multiply the tax bracket by the depreciation to show your in-pocket savings. 

It has been amended that the Net Operating Loss Rule allows for real estate investors to take this bonus depreciation as a carry back up to 5 years or may carry forward for 15 years. Simply, this suggests that if you currently do not need the extra “tax write off” you may have paid taxes from 5 years ago to the present. The bonus depreciation may be carried back to any of those recent 5 years to recapture the income taxes paid on active or passive income, depending on the qualifications regarding active and passive income.

Qualifications for Go Zone

Real Estate Professionals: This includes realtors, builders, or anyone participating in over 750 hours of real estate activity. A w-2 employee with a corporate job is tough to qualify as a true “real estate professional”, however not impossible. IF you qualify as a real estate professional you may deduct this off of your ACTIVE Income.

Passive Investors: If you are not a real estate professional, but have passive income from rental property, equipment rental, software, etc…you can deduct the bonus depreciation off of only your PASSIVE Income.

If your annual Adjusted Gross Income is between $100,000 and $150,000, for every dollar higher than $100,000, you lose $.50 per dollar on the 50% bonus depreciation.

If your annual Adjusted Gross Income is less than $100,000 per individual or combined if you are married, you may take up to a 25% bonus depreciation, offsetting most, if not all of your federal income taxes.

If your spouse is unemployed or working part-time and you have rental property, you may be able to document him/ her as a real estate professional and deduct off ACTIVE Income.

Additional Tip: Upon exit strategy of your Go Zone investment, you may 1031 Exchange your profits. If your new 1031 property is located outside anywhere that was previously in the Go Zone designated areas, you will be subject to “recapture.” If you invest the proceeds IN the previous Go Zone designated areas, you will NOT be subject to a “recapture.” Go Zone designated areas are on the coast of Florida, and most of Alabama, Mississippi, and Louisiana.

In is highly advised that you consult with your accountant / CPA for qualification verification.  We do not act as tax professionals.  Anything stated above is deemed accurate but not guaranteed.

CLICK HERE for more details on Go Zone Qualification Criteria

Information herein this website is for informational purposes only.  GREN Realty, Inc and AJA Holdings, LLC deem information reliable but not guaranteed.  As in all real estate investments, GREN Realty, Inc and AJA Holdings, LLC advise prospects to perform their own due diligence.  GREN Realty, Inc and AJA Holdings hold no liability for the value performance of any property.