Determining When a Property Qualifies for the Go Zone

If we've piqued your curiousity about the Go Zone, then you'll want to know when a residential property will qualify for the Go Zone bonus depreciation. As a real estate investor, the Go Zone presents a significant, but time-sensitive real estate investing opportunity. Here's how you and the property will qualify for the Go Zone bonus depreciation.

Qualifying for the Go Zone bonus depreciation

To qualify for the bonus depreciation, substantially all the use of the property must be in the Go Zone and you, as the investor, have this property within the active conduct of your trade or business. An activity qualifies as a business if the primary purpose for engaging in it is for income or profit, and the individual is involved in the activity with continuity and regularity.

Residential Property and the Go Zone

Since residential property is not mobile, it will meet the requirements if:

1. It is located in an appropriate county in the Go Zone;
   
2. It is new or substantially renovated;
   
3. It is put in service by the deadlines;
   
4. It meets the requirements of being a part of your trade or business

In other words, a trade or business is actively conducted by you, the taxpayer “if the taxpayer meaningfully participates in the management or operations of the trade or business”(Notice 2006-67). That is, this isn't just a one-time shot for you, but you are an active real estate investor.

The determination will be made based on all facts and circumstances. Net leases generally do not satisfy the meaningful participation requirement. A shareholder, member, or partner in a corporation, LLC, partnership or other pass through entity meaningfully participates either by his own activities or by others acting on behalf of the entity.

A great resource for determining the specific counties and dates where bonus depreciation is allowed is from the American Institute Of Certified Public Accountants.

It's important to remember that to qualify for a Go Zone bonus depreciation, not only does the property have to be in the right areas, you, as the investor, must be actively involved (substantially involved) in the management of your properties.

Relevant Resources for the Go Zone:

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

List of Counties & Dates For Bonus Depreciation