There is good news for most companies that are investing in rebuilding the areas hit by hurricanes Katrina, Rita, and Wilma. The recently enacted Gulf Opportunity Zone Act of 2005 contains a package oftax incentives designed to help revitalize these areas. As someone who rode out Wilma with fellow lessors at the ELA Convention, I can tell you that there is a huge amount of investment opportunity in this area.
The Act establishes tax incentives in what is known as the Gulf Opportunity Zone (GO Zone). The GO Zone includes the Hurricane Katrina, Hurricane Rita, and Hurricane Wilma disaster areas. Much of these incentives are similar to the provisions of the tax bills passed after the terrorist attacks of 9/11. For example, the Act provides a 50% bonus MACRS depreciation allowance in the first year. The bonus depreciation means that business will get to write off 60% of most types of equipment in the first year.
Just as in the previous tax bill allowing 50% bonus depreciation, this incentive also applies to purchased computer software and leasehold improvements. All depreciation deductions for property qualifying for the bonus depreciation also are exempt from the AMT. The 50% bonus depreciation allowance applies to property acquired after August 27, 2005, and placed in service before January 1, 2008, so there is a fairly short window during which lessors may take advantage of this benefit.
Other provisions of the Act include a doubling of the Section 179 deduction for businesses, allowing them to expense up to $200,000 a year of the cost of machinery and equipment, and some types of software. It also increases the level of investment at which the 179 benefits phase out from $400,000 to $1 million of qualifying purchases. The changes to the Section 179 provisions apply to property placed in service in the GO Zone after August 27, 2005 through 2007. Lastly, the Act extends the net operating loss carryback period from 2 to 5 years if those NOLs are attributable to depreciation deductions for GO Zone property. The timeframe for the NOL rule is for losses incurred after August 27, 2005, and before January 1, 2008.
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