As I noted in my post regarding hybrids, the tax environment is not as friendly or free-wheeling as those heady days of the early 80s, or even the 90s, for that matter. There still are targeted and highly focused opportunities out there for lessors that look and are nimble enough to take advantage of them, however. One of these is the additional first-year depreciation allowance, specifically, the one enacted for Gulf Opportunity Zone (GO) property.
After 9-11, the IRSallowed a series of additional first year depreciation deductions for qualified property. To be eligible for the latest version of the additional first year depreciation deduction (50% bonus depreciation property) the property had to be placed in service by the taxpayer before Jan. 1, 2005, or, for property having longer production periods and certain aircraft that is not transportation property, before January 1, 2006. Let’s call this property the ‘specified property.’
One of the provisions of the GO Zone Act gives the IRS the authority, on a taxpayer by taxpayer basis, to extend the required placed in service date for the specified property. This property includes property having longer production periods and certain aircraft that I mentioned earlier. The property must be either placed in service or manufactured in the GO Zone, the Rita GO Zone, or the Wilma GO Zone by someone affected by Hurricane Katrina, Rita, or Wilma.
Apparently, the IRS has considered the effect of Hurricanes Katrina, Rita, and Wilma on the manufacture and acquisition of property in the various GO Zones. Based on this review, they have found it necessary to extend the required placed-in-service date for the specified property to before January 1, 2007, if the taxpayer was unable to meet the December 31, 2005, placed-in-service date deadline for the property as a result of Hurricane Katrina, Rita, or Wilma.
Now, down to the nitty-gritty of getting the benefit. If you take advantage of the extension, you must write “Extension under Announcement 2006-29” across the top of Form 4562, Depreciation and Amortization, for the year you placed the property in service. Although you don’t have to attach any information regarding your determination that the property satisfies the requirements described above, you must maintain documentation sufficient to establish your entitlement to the deductions. Good luck!
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