Congress Extends Placed-in-Service Dates for 50 percent Bonus Depreciation For Certain Limited Properties Located in the Most Heavily Damaged Counties Within the GO Zone
The 2005 Gulf Opportunity Zone Act created the Gulf Opportunity Zone (GO Zone) which consisted of 31 Louisiana parishes, 49 Mississippi counties and 11 Alabama counties hit by hurricane Katrina. Under this act, certain personal property placed in service and used within the GO Zone before Jan. 1, 2008 qualifies for 50 bonus depreciation. Additionally, certain nonresidential real property and residential rental real property in the GO Zone placed in service before Jan. 1, 2009 qualifies for the 50 percent bonus depreciation. This bonus depreciation is not an item of tax preference for the alternative minimum tax. Any loss created by such bonus depreciation may be carried back three years.
The recently enacted Tax Relief and Health Care Act of 2006 extended the placed-in-service date for certain nonresidential real property, residential rental property and personal property contained within such real property to qualify for the 50 percent bonus depreciation. This extension applies only to property located in a few of the most heavily damaged counties within the GO Zone.
The property for which the extended placed-in-service dates apply consists of (1) nonresidential real property or residential rental property placed in service after Dec. 31, 2008 and on or before Dec. 31, 2010 and (2) certain MACRS property, placed in service after Dec. 31, 2007. Substantially all the use of the MACRS property must be within a qualifying building and must be placed in service within 90 days after the qualifying building is placed in service. The extension provides for additional time to construct or rehabilitate certain kinds of buildings and for the user of such building to have an incentive to move in and conduct business.
In contrast, the eligible personal property placed in service by the end of 2007 can be used for virtually any business purpose within the full GO Zone and can include equipment and vehicles not associated with a qualifying building. The original intent was to jump start all kinds of economic activity and not simply to foster the construction of certain kinds of new or rehabilitated buildings and the business operations of tenants or owners of such real property.
Even though the nonresidential and residential rental property may be placed in service through the end of 2010, only costs associated with the manufacture, construction, or production of such property Jan. 1, 2010 are eligible for the 50 percent bonus depreciation. Real property costs incurred in 2010 are not eligible for bonus depreciation computation, even if the property is placed in service by the end of the year with the progress costs incurred prior to 2010 eligible for bonus depreciation.
The portions of the GO Zone eligible for the extended placed-in-service dates are limited to those GO Zone counties or parishes in which more than 60 percent of the occupied housing units were damaged by the 2005 hurricanes. Eligible counties and parishes are to be identified by the Secretary of the Treasury based upon data compiled by the Office of the Federal Coordinator for Gulf Coast Rebuilding at the Department of Homeland Security, in cooperation with FEMA, the SBA and HUD (the Report). This data was published on February 12, 2006. Although nothing is official or complete until the Treasury issues its list (which it has not yet done), it appears from the Report that only 12 counties or parishes will be eligible for the extended placed-in-service date – these are Calcasieu, Cameron, Orleans, Plaquemines, St. Bernard, St. Tammany and Washington Parishes in Louisiana and Hancock, Harrison, Jackson, Pearl River and Stone Counties in Mississippi. The Report identifies no eligible Alabama counties.
< Return to News Headlines