Gulf Opportunity Zone : Baton Rouge Area Chamber

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The GO Zone Act establishes tax incentives and bond provisions to encourage the rebuilding of local and regional economies devastated by Hurricanes Katrina and Rita. There are provisions geared toward both existing businesses and businesses that are new to the GO Zone area.

Provisions for Existing Businesses

Enhanced Net Operating Loss (NOL) Carryback
Qualified GO Zone losses can be carried back five years, rather than the usual two years. Qualified losses include: casualty losses to business-related property located in the GO Zone, which are attributable to Hurricane Katrina; expenses incurred by an employer for certain moving expenses for employees who were unable to remain in their residences due to the Hurricane; deductions for expenses to temporarily house employees who were employed in the GO Zone; depreciation deduction for qualified GO Zone property placed in service during the year; and deductions for repair expenses and debris removal for damage caused by Hurricane Katrina on property located in the GO Zone.

Tax Exempt Bond Financing
GO Zone Bonds provide a unique opportunity for private business owners and corporations to borrow capital at favorable tax-exempt rates to acquire, construct, reconstruct, or renovate non-residential real property, such as office buildings, warehouses, rental housing, manufacturing facilities, shopping centers, retail stores and many other private sector projects. Interest on GO Zone Bonds is exempt from federal and state income taxes and exempt from inclusion in the federal Alternative Minimum Tax, therefore borrowers can access capital at rates 1.5% - 2% below conventional bond financing.
Note: a property may not qualify for both tax-exempt bond financing and the 50% bonus depreciation explained below. Businesses should assess which provision is the most advantageous.

Employee Retention and Work Opportunity Tax Credits
Employers are eligible for a Work Opportunity Tax Credit with respect to wages paid to workers who resided within the core Hurricane Katrina disaster area as of August 28, 2005. The credit is equal to 40% of the first $6,000 in wages paid to qualifying employees.
Note: Employee certification requirement is waived. Employees must provide ‘reasonable evidence’ to the employer supporting residency qualification.

Following Hurricane Katrina, many businesses were inoperable due to hurricane damage. However, in order to retain their employees, some employers continued to pay their employees during this period. Eligible employers may receive an income tax credit for wages paid to employees while their business was inoperable between August 27, 2005, and December 31, 2005.

Bonus Depreciation
Qualifying real and personal property used in the ‘active conduct of a trade or a business’ may be allowed an additional depreciation deduction equal to 50% of the depreciable basis for the first year the property is placed in service. Qualifying residential and non-residential real property must be placed in service before December 31, 2008. All other qualifying property must be placed in service before December 31, 2007. Qualified property includes tangible personal property, computer software, water/utility property, leasehold improvement property, and residential and non-residential real property (excluding casinos, liquor stores, golf courses, country clubs, massage parlors, hot tub facilities, sun tanning facilities, and race tracks).
Note: GO Zone property cannot qualify for both tax exempt bond financing and 50% bonus depreciation. Businesses should assess which provision is the most advantageous.

Increased Section 179 Expensing
Generally, IRS Code section 179 allows a taxpayer to expense up to $108,000 of the cost of property acquired for use in a trade or business. This maximum has been increased to $205,000 for qualified GO Zone property placed in service from August 28, 2005, to December 31, 2005, and to $208,000 for property placed in service in tax years beginning in 2006 and ending December 31, 2007. This provision does not apply to real property.

Increased Tax Credit for Rehabilitation Expenditures
Generally, a tax credit of 20% is provided for qualified rehabilitation expenditures for certified historic structures – those that are listed in the National Register of Historic Places, located within a registered historic district, or otherwise certified as being of historic significance. A 10% credit is available for qualified rehabilitation expenditures on buildings that were first placed in service prior to 1936. Certified historic structures located within the GO Zone are now eligible for a 26% tax credit, and qualifying pre-1936 buildings located within the GO Zone are eligible for a 13% credit, for expenditures made on or after August 28, 2005, and before January 1, 2009.

Enhancement of Low-Income Housing Tax Credits
GO Zone provides for a greater allocation of low-income housing tax credits, increases the number of people who qualify as low-income, and increases the amount of financing that results from using the tax credit.

Deduction for Clean-up and Demolition
Taxpayers in a trade or business may claim a 50% deduction for costs paid or incurred to demolish structures, or to clean up and remove debris from real property located within the GO Zone. This applies to costs incurred on or after August 28, 2005, and before January 1, 2008.

Click here for Go Zone Application.

Provisions for New Businesses and Investors

Enhanced Net Operating Loss (NOL) Carryback
Qualified GO Zone losses can be carried back five years, rather than the usual two years. Businesses entering the Louisiana GO Zone for the first time can use the carryback opportunity to offset income from prior year operations, whether those operations were in the GO Zone or not.
Qualified losses include: depreciation deduction for qualified GO Zone property placed in service during the year; and deductions for repair expenses and debris removal for damage caused by Hurricane Katrina on a property located in the GO Zone.

Tax Exempt Bond Financing
As incentive for investment in the GO Zone by start-ups, expanding businesses, and national and international developers, GO Zone Bonds provide a unique opportunity for private business owners and corporations to borrow capital at favorable tax-exempt rates to acquire, construct, reconstruct, or renovate non-residential real property, such as office buildings, warehouses, rental housing, manufacturing facilities, shopping centers, retail stores and many other private sector projects. Interest on GO Zone Bonds is exempt from federal and state income taxes and exempt from inclusion in the federal Alternative Minimum Tax, therefore borrowers can access capital at rates 1.5% - 2% below conventional bond financing.
Note: a property may not qualify for both tax-exempt bond financing and the 50% bonus depreciation explained below. Businesses should assess which provision is the most advantageous.

Bonus Depreciation
Qualifying real and personal property used in the ‘active conduct of a trade or a business’ may be allowed an additional depreciation deduction equal to 50% of the depreciable basis for the first year the property is placed in service. Qualifying residential and non-residential real property must be placed in service before December 31, 2008. All other qualifying property must be placed in service before December 31, 2007. Qualified property includes tangible personal property, computer software, water/utility property, leasehold improvement property, and residential and non-residential real property (excluding casinos, liquor stores, golf courses, country clubs, massage parlors, hot tub facilities, sun tanning facilities, and race tracks).
Note: GO Zone property cannot qualify for both tax exempt bond financing and 50% bonus depreciation. Businesses should assess which provision is the most advantageous.

Increased Section 179 Expensing
Generally, IRS Code section 179 allows a taxpayer to expense up to $108,000 of the cost of property acquired for use in a trade or business. This maximum has been increased to $205,000 for qualified GO Zone property placed in service from August 28, 2005, to December 31, 2005, and to $208,000 for property placed in service in tax years beginning in 2006 and ending December 31, 2007. This provision does not apply to real property.

Increased Tax Credit for Rehabilitation Expenditures
Generally, a tax credit of 20% is provided for qualified rehabilitation expenditures for certified historic structures – those that are listed in the National Register of Historic Places, located within a registered historic district, or otherwise certified as being of historic significance. A 10% credit is available for qualified rehabilitation expenditures on buildings that were first placed in service prior to 1936. Certified historic structures located within the GO Zone are now eligible for a 26% tax credit, and qualifying pre-1936 buildings located within the GO Zone are eligible for a 13% credit, for expenditures made on or after August 28, 2005, and before January 1, 2009.

Enhancement of Low-Income Housing Tax Credits
GO Zone provides for a greater allocation of low-income housing tax credits, increases the number of people who qualify as low-income, and increases the amount of financing that results from using the tax credit.

Deduction for Clean-up and Demolition
Taxpayers in a trade or business may claim a 50% deduction for costs paid or incurred to demolish structures, or to clean up and remove debris from real property located within the GO Zone. This applies to costs incurred on or after August 28, 2005, and before January 1, 2008. Investors may use this provision to their advantage by purchasing damaged properties located in the GO Zone, using the 50% deduction for costs associated with the clean up of debris and demolition of structures, and then selling the property for a profit.