GO Zone Update and Tax Incentives Explained

With Tax season right around the corner, I am sure that on everyone’s mind is the topic of getting every (legal) tax benefit that they can get.  We thought it was appropriate given the season to overview the GO Zone benefits and update everyone on what they can do to take advantage of this offer from the IRS.

GO ZONE EXTENSION UNTIL 12/31/2010

As you may already know, the IRS extended the benefits of the GO Zone out until the end of this year.  That’s the good news.  There are a few items you need to be well aware of before breaking out your checkbook to purchase properties.

#1:  LOCATION, LOCATION, LOCATION!

When the GO Zone extension took place, the IRS ONLY extended benefits in certain areas of the original GO Zone.  This includes certain areas of Mississippi and Louisiana, but NOT Alabama (AL GO Zone benefits ended back in 2008).  Mississippi Counties where you can still purchase GO Zone properties and receive benefits are Harrison, River, Hancock, Stone, and Jackson Counties.

So, as an example, if a newly built single family home in Gulfport Mississippi was purchased in December 2009 and was put into rental service in February 2010, it would qualify with the extension since Gulfport is in Harrison County, MS.

#2:  IT’S ALL ABOUT TIMING

There is one more very important items that you need to be aware of with the GO Zone extension that has to do with the way the IRS Code is written.  The short story* is that according to the IRS, you will only get Bonus Depreciation benefits on the portion of the home that was completed ON OR BEFORE December 31st, 2009.

* If you want the “long version” of the story that digs into the depths of the IRS code, drink some coffee, click “here“, and then scroll down towards the bottom of the article.

Confused yet?  Let’s look at a real example.  Supposed you had a new home built and completed in 2009 in Gulfport, MS. 

 Purchase Price:  $119,000
 Land:  $20,000
 Total Construction:  $99,000
 Bonus Depreciation:  $49,500

Since the construction was completed before the IRS deadline, then the bonus appreciation available to you is $49,500.

Let’s consider another example.  Suppose that someone was offering the following Duplex in Ocean Springs, MS (Ocean Springs is in Jackson County).  However, the unit was not started until after January 1st, 2010.

Purchase Price:  $198,000
Land:  $20,000
Total Construction:  $178,000
Bonus Depreciation:  $0

Note there was no portion of the construction completed before the IRS deadline, there is absolutely no GO Zone benefits for this Duplex purchase.

AM I TOO LATE?

Good new is that there are still some quality GO Zone Single Family properties out there.  The bad news is that given the IRS deadlines imposed in the extension, finding not only qualified properties, but also properties that make sense are becoming harder and harder to find. So to answer the above question, NO - you are not too late.  There are still some prime quality properties out there for you to take advantage of (i.e. reduction of your tax liabilities through GO Zone benefits).  You just need to know what to look for and where to look.

WHERE DO I LOOK?

We are constantly on the look out for quality homes that make purchasing sense in the GO Zone.  If you are interested in receiving details once they come in, simply click here to e-mail me.  Just a quick head’s up on something from experience.  Given the demand of the remaining inventory that was already on the ground prior to the start of 2010 (and that the high-quality and desirable ones are getting grabbed up quickly), you will have to act quick if you want to benefit from the huge tax incentives.