In December of 2005, Congress and President Bush passed the Gulf Opportunity Zone Act.  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. 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.

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