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Congress Extends Go Zone Bonus Depreciation Benefit

Business owners in certain highly damaged areas hit by Hurricane Katrina will have more time to take advantage of tax incentives to rebuild.

On December 9, Congress passed and sent to the President the Tax Relief and Health Care Act of 2006, which extends for two years deadlines for benefiting from the bonus depreciation under the Gulf Opportunity Zone Act. The President is expected to sign the bill.

The Gulf Opportunity Zone Act, signed into law by President Bush on December 21, 2005, established bond provisions and tax incentives, including bonus depreciation, to encourage the rapid rebuilding of affected counties and parishes in Mississippi, Louisiana and Alabama.

The new legislation extends the deadlines for benefiting from the bonus depreciation until December 31, 2010 for certain highly damaged areas in Mississippi and Louisiana. Those areas are five counties in Mississippi (Hancock, Harrison, Jackson, Pearl River and Stone) and seven parishes in Louisiana (Calcasieu, Cameron, Orleans, Plaquemines, St. Bernard, St. Tammany and Washington).

Due in large measure to the efforts of Senators Trent Lott and Thad Cochran and Representatives Chip Pickering and Gene Taylor, Congress acknowledged the critical need for more time to rebuild in the highly damaged areas. The bonus depreciation benefit was set to expire December 31, 2007, for personal property and December 31, 2008, for real property. Because of the extensive damage in these counties and parishes, reconstruction and rehabilitation efforts have been slower.

“The extension of the GO Zone bonus depreciation tax credits will help to jump-start economic recovery in these five Mississippi counties that suffered the greatest damage from Katrina,” according to Barry Cannada of Butler Snow. “We already have seen at least one construction project that now will go forward that would have been shelved under the shorter bonus depreciation deadlines of the initial GO Zone Act.”

The original bonus depreciation expiration dates are still applicable to all other counties and parishes in Mississippi, Louisiana and Alabama. With the year 2007 approaching, private business owners and corporations should be mindful of these deadlines.

As an alternative to taking bonus depreciation, all private business owners and corporations located in the Gulf Opportunity Zone have until December 31, 2010, to borrow capital utilizing tax-exempt GO Zone bonds to acquire, construct, reconstruct or renovate non-residential real property, qualified residential rental projects, and public utility property.

In addition, a business that uses either taxable or tax-exempt bonds may be able to achieve significant additional state-law incentives in connection with its financing, such as property or income tax exemptions.

Butler Snow attorneys created The Gulf Opportunity Zone Act of 2005: Benefits Available to Businesses, a guidebook that explains the financial incentives for rebuilding, expanding or moving business operations into the GO Zone. Gozonelaw.com includes information from this booklet. Businesses and reporters may obtain a copy of the booklet by calling Butler Snow at 601-985-4104 or by e-mailing gozonebook@butlersnow.com.

Released: Tuesday, Dec 12, 2006