Would you like to write off $75,000 on your 2008 taxes?

If so, take a look at our GO Zone Starter Package. In this starter package, we have identified what deductions you can possibly take on your taxes, how to qualify for the tremendous tax benefits, and how you can get started today! Don't miss this window of opportunity, start saving today!

In response to the devastation caused by Hurricane Katrina across the Mississippi Gulf Coast region, Congress enacted significant federal legislation to promote recovery and rebuilding in the affected areas. The Gulf Opportunity Zone Act of 2005 (H.R. 4440 passed by Congress on December 16, 2005 and signed by President Bush on December 21, 2005) establishes tax incentives and bond provisions to rebuild the local and regional economies devastated by Hurricanes Katrina and Rita and to promote investment. The act is commonly known as the "GO Zone Act."

Certain counties and parishes in Mississippi, Louisiana and Alabama are eligible for the federal benefits under the GO Zone Act of 2005. The property must be acquired after August 27, 2005, but only if no written, binding contract was on the property before the date. Benefits include 50% bonus depreciation in the year the property is placed into service, tax-exempt financing, 5 year net operating loss carry back and a 20 year net operating loss carried forward. The act is continuous until December 21, 2008, yet has been extended in limited counties and parishes through December 31, 2010.

 

WeCashFlow have been offering homes for sale in the GO Zone area for over a year. The owners have visited the states of Louisiana, Mississippi and Alabama after Katrina on many occasions. We have also personally invested in the GO Zone areas and can personally attest to the extreme financial benefits as a taxpayer. As investors ourselves and in an effort to continually assist our clients with the best properties in the best areas with the minimal amount of risk, we have not offered properties on the Mississippi Gulf. The reasons include annual insurance premiums of over $4,000, stagnant re-building in the heavily damaged areas and the possibility of future hurricanes. Yet, upon researching the GO Zone Legislature we have found areas in Louisiana, Mississippi and Alabama that are just far enough from the gulf that in the event a hurricane were to hit again, it would normally dissipate enough to limit the wind damage. Please remember that the biggest devastation of Katrina was the water surge.

With these considerations in mind, we have focused on the suburbs of Baton Rouge, Louisiana, Mobile, Alabama and Jackson, Mississippi. We are finding many investors and individuals have "discovered" the GO Zone and its tax benefits. In the summer of 2006 we talked to many CPA's across the United States and most had not even heard of the GO Zone. The GO Zone was an undiscovered gold mine! Yet with time, investors and individuals have now discovered the GO Zone and its benefits. With this discovery comes a surge of investors entering these major cities to invest. Because of the influx of investors in these areas it is crucial you deal with an experienced investment group such as WeCashFlow who has visited the regions on more than one occasion. In addition, it is important that we stay abreast of the rental markets, growing economies and general stability of these major cities. It is imperative you purchase a property in an area not saturated with investors. We have found most investment groups make deals with builders from their office across the United States and have never visited the areas they offer for sale; let alone research the subdivisions and the ratio of non-owner occupied homes vs. owner occupied. If you do not do your own "due diligence" you might find yourself buying in a neighborhood filled with 50% of rental homes. Builders in certain areas of Mississippi do not conduct business and building practices like we are accustomed to. In turn, these small to medium builders are taking advantage of the investor demand with no consideration of the long term effects to you and your property.

 

AREAS QUALIFYING FOR BENEFITS
The areas hit hardest by Hurricane Katrina have been designated to receive the most benefits under the Act. This area, referred to as the Gulf Opportunity Zone (GO Zone) is larger than one might expect. The GO Zone includes 47 counties in Mississippi, 31 parishes in Louisiana and 11 counties in Alabama. The benefit to a real estate investor is you can purchase a single family home in a city that is 1 to 3 hours from the coast and still qualify for the GO Zone benefits. WeCashFlow finds these benefits to be extremely desirable to investors as they are not suspect to hurricanes and the areas have normal insurance premiums unlike those homes on the coast.

View approved list of GO Zone Counties and Parishes.

50% BONUS FIRST YEAR DEPRECIATION ALLOWANCE
One of the most important benefits provided by the Act is the acceleration of depreciation deductions for certain property used in the GO Zone. The Act provides a 50% first-year depreciation allowance to help rebuild in the GO Zone. This is particularly valuable for depreciable real estate, which if residential real estate is normally depreciated over 27.5 years. To qualify for the benefits, the property must satisfy the six requirements identified below. In more general terms, the property purchased by a taxpayer must be put into service in trade or business in the GO Zone between August 27, 2005 and December 31, 2008 (for depreciable property).

• Qualified Property. The property must be non-residential real property or residential property.
• Use in an Active Trade or Business. Substantially all of the use of the subject property must be used in the GO Zone in an active trade or business. Please consult your tax attorney or CPA to verify your qualification of this requirement.
• Use in the GO Zone Begins After August 27, 2005. The original use of the property in the GO Zone must begin with the taxpayer after August 27, 2005. Capital expenditures incurred to recondition or rebuild property also satisfy the original use requirement if the original use of the property began in the GO Zone with the taxpayer.
• Purchase Requirement. The property must be acquired by "purchase." A purchase is any acquisition of property other than an acquisition (1) from a person related to the taxpayer; (2) from another member of a controlled group of corporations.
• Timely Acquisition Requirement. No written binding contract for the purchase of the property by the taxpayer or a related party can be in effect before August 28, 2005.
• Timely Placement into Service Requirement. The property must be placed into service by the taxpayer before December 31, 2008 for residential real property. This time frame has been extended to December 31, 2010 for selected counties and parishes in the GO Zone. The eligible counties and parishes are found in the gulf areas.

NET OPERATING LOSS (NOL) CARRY BACK
Net operating loss (NOL) carry back for qualifying losses is extended from 2 years to 5 years. If you have a large tax loss in the year you place the residential property into service due to the GO Zone deductions, you can apply the depreciation deductions against your income in prior years. The tax code will allow you to go back up to 5 years in order to obtain refunds of taxes already paid or owed.

ADDITIONAL CONSIDERATIONS RELATED TO BONUS DEPRECIATION
Other provisions under the tax code must be considered when analyzing the financial benefits of an investment in the GO Zone. Importantly, bonus depreciation is subject to recapture when the subject property ceases to qualify as a GO Zone property. This could occur on the sale or disposition of the property or upon transfer of the property to a location outside the GO Zone. Also, of particular importance to real estate investors will be the application of the passive loss rules. Pass through entities, such as LLC's, that contract and operate real estate properties in the GO Zone qualifying for the bonus depreciation could very likely generate a first year tax loss as a result of the large depreciation deduction. However, the passive investors may not be able to offset such losses against active income, such as compensation, as a result of the passive loss rules.

Each situation and investor is different. We highly advise you to check with your tax attorney and/or CPA to verify if you qualify as an active or passive investor and how the IRS rules apply to you and your situation. For more information, please go to the IRS web site and read IRS Publication 4492.

 

An Example of How the "GO Zone" Benefits Work
Purchase a new construction home for $180,000. Subtract land value of $20,000 (land is not depreciable), which leaves you with an improvement or structure value of $160,000 (depreciable value). You are allowed to take a 50% bonus depreciation deduction of $80,000 in addition to the normal 27.5 year depreciation.

If you are in the 33% tax bracket, your NET SAVINGS of money not paid in Federal income taxes would be $28,300. This equates to $28,300 in your pocket per property. If your depreciation write off exceeds your actual tax, you can possibly carry back the excess write off and re-file your prior year taxes up to 5 years. Or you can carry the loss forward for subsequent years.

Please look at the chart below for a "GO Zone" Benefit Financial Projection.

 

Purchase Price - $180,000 New Construction Home

 

10% Down Financing
6.75% IR - 30 Year Fixed Rate Loan - Fully Amortized
No Mortgage Insurance - 90% 1 Loan

 

TAX BENEFITS - Income Brackets 2005
 

Tax Benefit calculated on 28% tax bracket $24,029
 

* This chart is for illustration purposes only. We realize that federal tax is calculated in graduated steps and is not reflected in this illustration. Mortgage interest rates and the 90% one loan programs are subject to change without prior notice.

All investors are encouraged to do their own "Due Diligence" prior to investing. Information is deemed to be reliable, but no guarantee is made. PLEASE CONTACT YOUR TAX ATTORNEY OR CPA TO VERIFY YOUR QUALIFICATIONS FOR THE "GO ZONE" BENEFITS.

 

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