GO Zone Act provisions for hurricane victims.

• Author: Bloom, Aaron
• Position: Gulf Opportunity Zone Act of 2005

On Dec. 21, 2005, President Bush signed the Gulf Opportunity Zone Act of 2005 (GO Zone Act), the second of two tax bills that sent relief to Gulf Coast areas affected by Hurricanes Katrina, Rita and Wilma. The bill is based on three special economic zones: the Katrina GO Zone, the Rita GO Zone and the Wilma GO Zone. It provides incentives to businesses and to individuals who live in the zones, and to those who previously did business there. Further, businesses that want to become established in the area are also eligible for tax incentives.

Although many will benefit from the GO Zone Act, some industries are specifically excluded from its provisions (e.g., casinos, liquor stores, golf courses, country clubs, massage parlors, hot tub facilities and race tracks).

Besides the hurricane tax incentives, the GO Zone Act has other provisions that clarify currently enacted tax provisions.

Depredation

Many GO Zone Act tax incentives resemble those enacted after the September 11 terrorist acts. One such incentive is the 50% bonus first-year depreciation allowance for property placed in service in a GO Zone after Aug. 28, 2005 and before 2008 (2009 for nonresidential real property and residential rental property). Substantially all of the property's use must be for the active conduct of a trade or business in a GO Zone. To qualify, the property must fall into one of six categories: (1) property to which the modified accelerated cost recovery system (MACRS) rules apply and which has a recovery period of less than 20 years, (2) computer software not covered by Sec. 197 to which the MACRS rules apply, (3) water utility property to which the MACRS rules apply, (4) qualified leasehold improvement property to which the MACRS rules apply, (5) nonresidential real property or (6) residential rental property.

The GO Zone Act increases the maximum amount deductible under Sec. 179 by the lesser of $100,000 or the cost of qualified Sec. 179 property acquired by the taxpayer and placed in service during the tax year. This has the effect of increasing the allowable first-year-depreciation Sec. 179 limits from $100,000 to a maximum $200,000 for qualified GO Zone property. While the current law allows indexing for inflation, increased expensing in qualified GO Zone areas is not indexed. Further, the GO Zone Act increases the amount of qualified Sec. 179 GO Zone property placed in service before Dec. 31, 2007, from $400,000 to $1 million. The additional $600,000 in the...