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Discussion:GO Zone Act First Year Depreciation

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Discussion Forum Index --> Tax Questions --> GO Zone Act First Year Depreciation

Ccorbin (talk|edits) said:

12 January 2006
I'm trying to gain a clearer understanding of the GO Zone Act of 2005 where depreciation is concerned.

Four questions.

1) Does a condominium unit, such as a Gulf front unit in a high-rise condo, purchased in the GO Zone where construction was begun after Aug 28, 2005 and completed for rental before Dec 31, 2008 qualify for the additional 50% first year depreciation?

2) Same as above except the property is a detached single family residential property used for rental?

3) Would expenditures after purchase used to recondition a hotel damaged by Katrina and the hotel's 2005 tax basis qualify for the additional 50% first year depreciation? Or just 50% of the capital expenditures for reconditioning?

4) Would a new retail building constructed before Dec 31,2008 qualify for the 50% first year depreciation if it normally is depreciated longer than 20 years?

Riley2 (talk|edits) said:

13 January 2006
1)As long as no binding contract was in existence before 8/28/05, this would appear to be eligible.

2)Same as above.

3)Reconditioning expenses appear to satisfy the original use requirement. No bonus would be allowed on the expensed portion.

4)Yes. The depreciation period is not relevant since it is nonresidential real property.

Ccorbin (talk|edits) said:

13 January 2006
Thanks Riley2.

CPA-Dan (talk|edits) said:

21 February 2006
Even if you are allowed to write off 50% of the purchase of a rental property in the Katrina Zone, wouldn't you still be subject to the passive activy rules? That is loss limited to $25,000 if your AGI is below $150,000.

AmirHawk (talk|edits) said:

18 April 2006
I am still not clear on what can obtain the 50% bonus depreciation.

Let look at the scenario:

I purchased a single family home in New Orleans that was flooded by Katrina and uninhabitable (New Orleans is in the GO Zone area). The contract was signed in Feb 2006 and the closing occured in March 2006 (both after the storm). I paid $100K for the property. Tax records show that 25% is land value and 75% are improvements. I spent another $40K in rehab and rented the place out (the property was an owner occupied property before the storm).

What portion qualifies for the acclerated 50% depreciation bonus? Improvements cost + rehab costs? ($75K+$40K)? Rehab costs only? ($40K) None?

The IRS publication states that to be qualified "The original use of the property in the GO Zone must begin with you after August 27, 2005. Used property can be qualified GO Zone property if it has not previously been used within the GO Zone. Also, additional capital expenditures you incurred after August 27, 2005, to recondition or rebuild your property meet the original use test if the original use"

What exactly does this mean?

Mdonline (talk|edits) said:

19 June 2006
Would someone confirm for me what is the "additional 50% write off" means.

Let say one buys a rental property for 1 million (800k for the building and 200k for land). Assuming that he/she is a professional real estate investor, does that mean that he or she can write off 400k off the ordinary income the first year and the rest of the 400k to be depreciated over the next 26.5 years?


Wade (talk|edits) said:

11 July 2006
"Write off" is such an ambiguous term. To avoid confusion among those reading the questions and eagerly awaiting answers, allow me to say that the 50% is not taken as a loss but rather as depreciation. As with all depreciation, that money will be reclaimed by the government when the property is sold--so this is a way to defer taxes not avoid them. (Now, as I understand it, depreciation is not reclaimed when the property is inherited after your death.)

Wade (talk|edits) said:

16 July 2006
Question: Even if you are allowed to write off 50% of the purchase of a rental property in the Katrina Zone, wouldn't you still be subject to the passive activity rules? That is loss limited to $25,000 if your AGI is below $150,000.

Answer: That's a good reason to check with your accountant first, but keep in mind that this depreciation can be made to apply five years forward or five years back. I believe then that would increase your eligibility (in the example given) to a cumulative $125,000, but again, check with your accountant.

Disclaimer: I was waiting for someone else to answer this, so please step forward if you have a better answer. I'm in real estate, not finance.

Valverta (talk|edits) said:

4 May 2007
I purchase an investment property in Baytown (Harris County), Texas back in October of 2005.

1. Is this property located in the GO Zone area where I could potentially qualify for the 50% additional first year depreciation tax deduction? I wasn't sure if this deduction only applied to the Katrina Zone or if it applied to the Rita Zone too.

2. I barely found out about the deduction. If the property does quality for the deduction, can I still fill out some sort of tax return amendment to get the deduction?

Thanks for your help. Cheers!

Taxguy1024 (talk|edits) said:

4 May 2007
The special 50% depreciation is specifically for "qualified GO Zone property" which means property placed in service in the Hurricane Katrina GO Zone. And you have a reference for the bonus depreciation not being recaptured if the original owner dies? When the first notice was issued concerning this, all it said was "If GO Zone property is no longer GO Zone property in the hands of the same taxpayer at any time before the end of the....recovery period" then the excess had to be limitation on HOW it was no longer GO Zone property,

Brfrenkel (talk|edits) said:

14 October 2007
What area that you consider to be most stable for real estate investments

in regards to rental demand. Will appreciate advice.

Reitinvestor (talk|edits) said:

22 January 2008
Central Mississippi(Rankin County)is probably the best location to purchase GoZone rental housing. The rental market is strong and prices should appreciate fairly well throughout the next few years. The strongest factor influencing a purchase there is that the insurance rates are MUCH lower than those of the coastal areas. Our group has purchased over 50 properties around central MS and have a 100% occupancy rate. There are some really good builders that build quality homes there as well.

Terra (talk|edits) said:

2 April 2008
I have a small business question. Would a vehicle placed into service for 100% business use in the GO zone in January 2007 qualify for the 50% depriciation without the table limits on trucks/vans(1st year 3,260). Is this in addition to the 200DB depriciation on the same vehicle?

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