Introduction To The Go Zone Real Estate Investment Opportunity

The Go Zone (Gulf Opportunity Act of 2006) is a tremendous real estate investment opportunity of which few people are taking advantage.

The reason may be quite simple: few people know about the Go Zone opportunity; and of those who know, even fewer understand what it is.

The birth of the Go Zone - The Gulf Opportunity Act of 2005

The Gulf Opportunity Zone Act of 2005 (the Act), which was signed into law in December 2005, includes a number of tax relief measures to assist victims of Hurricanes Katrina, Rita, and Wilma.

The Act also includes tax incentives to encourage rebuilding in and revitalization of the areas most affected by the hurricanes.

KETRA - The Katrina Emergency Tax Relief Act of 2005

The Katrina Emergency Tax Relief Act of 2005 (KETRA) also provides relief under several provisions. Of particular importance to residential real estate investors is the Bonus Depreciation established by this act.

Specifically, the Act provides a 50% bonus first-year depreciation allowance to help businesses rebuild in the GO Zone. Businesses get the bonus write off for the cost of most new property investments made in the GO Zone, including purchased computer software, leasehold improvements, certain commercial and residential real estate, machinery, and equipment.

All depreciation deductions (including bonus depreciation) for property qualifying for the bonus first-year write off are exempt from the AMT. The 50% bonus depreciation allowance applies to property acquired after Aug. 27, 2005, and placed in service before Dec. 31, 2008 in some areas (defined later) and Dec. 31, 2010 in others. This bonus depreciation can result in substantial tax savings if implemented properly.

For example, consider:

• $150,000 home purchase
  
• Qualified for Go Zone
  
• $20,000 land value + $130,000 structure value
  
• Bonus Depreciation = $65,000!

Imagine being able to take $65,000 off of your income tax return while getting to purchase a great appreciating asset in the process. Before you can just blindly charge forward, however, you need to understand if you can take advantage of these Go Zone benefits.

To make it simpler, it is best to ask the question in two parts:

1. Does the property qualify?
2. Can you realize tax savings from the bonus depreciation?

In the next two articles, we will address each topic separately:

Determining When a Property Qualifies for the Go Zone

How to Take Advantage Of the Go Zone Bonus Depreciation

Relevant Resources for the Go Zone:

Publication 4492 (1/2006), Information for Taxpayers Affected by Hurricanes Katrina, Rita

Additional Guidance for Those Affected by Hurricanes