Go Zone Information
What is the GO Zone?
What benefits does the GO Zone provide?
Which areas in Mississippi are “GO Zone” areas?
What tax incentives are available through the GO Zone?
What is the additional depreciation deduction?
What is considered GO Zone property?
What about the Section 179 deduction?
Can you use the Section 179 and Additional Depreciation deductions
together?
What about the demolition and cleanup expenses?
What is the Work Opportunity Credit?
What is the incentive for Net Operating Losses?
What is a qualifying GO Zone loss?
Are there any other federal tax benefits?
Are there any new financing tools provided by the GO Zone?
What is the Tax Exempt Bond?
Is there a Tax-Exempt Bond for small to mid-sized businesses?
What is the GO Loan?
What timber incentives are available?
Are there any state GO Zone benefits?
How do I know how to use these benefits to invest in my business?
Where can I call for other information?
Are there any other online resources regarding GO Zone benefits?
What is the GO Zone?
The federal government has established the Gulf Opportunity Zone or “GO
Zone” defined as the portion of the Katrina disaster area that warranted
individual or public assistance from the federal government. Similar to
the Liberty Zone of N.Y. after 911, the GO Zone is the recipient of multiple
tax and financing incentives. The tax relief incentives are estimated to
cost $8 billion.
(Source: Peyton, Tom, GO Zone Tax Incentives presentation. Donnell and
Company)
What benefits does the GO Zone provide?
GO Zone benefits are tax incentives provided by the federal government
to spur new investment in the areas affected by Hurricanes Katrina, Wilma
and Rita in 2005.
Which areas in Mississippi are “GO Zone” areas?
See the map below. 49 of Mississippi’s 82 counties are in the GO Zone
and are eligible for tax incentives from investments in those counties.
What tax incentives are available through the GO Zone?
The federal government offers incentives in four areas.
- DEDUCTIONS
–Additional depreciation, increased Section 179, and expensing of demolition and cleanup costs
- CREDITS
–Work opportunity credits and employee retention credits
- NET-OPERATING LOSSES
- TIMBER
What is the additional depreciation deduction?
The first is through an additional bonus depreciation deduction. Businesses
are allowed to claim an additional depreciation deduction
on GO Zone property of 50% of the cost of the asset in the first year
the property is placed in service.
The basis of the property is reduced by the amount of the bonus depreciation. This adjusted basis is depreciated beginning in the year of purchase. Property financed through tax-free bonds is excluded.
What is considered GO Zone property?
GO Zone property must be substantially used in the active conduct of
trade or business within the GO Zone.
It must placed in service after August 28, 2005 and before January 1, 2008. If this is nonresidential real or residential rental property, then your deadline is January 1, 2009.
GO Zone property may be new equipment, nonresidential real property, residential rental property, leasehold improvements, rehabilitation costs and used property if it has not previously been used within the Zone. GO Zone property excludes property used in gambling, golf courses, liquor stores, etc.
What about the Section 179 deduction?
The increased Section 179 deduction allows you to expense,
rather than depreciate, up to $208,000 of investments
in equipment and software.
The equipment must be GO Zone property and put into service before January 1, 2008. This excludes any real property. And the amount deducted is limited to the taxable income.
Can you use the Section 179 and Additional Depreciation deductions
together?
Yes. What you would do is reduce the basis of the property by the Section
179 deduction, and then take your 50% depreciation on whatever basis
was left.
What about the demolition and cleanup expenses?
You can expense 50% of these expenses incurred through 2007.
What is the Work Opportunity Credit?
The work opportunity credit is designed to spur the hiring of new employees
in the GO Zone area. If you now hire an employee who was living in
the GO Zone area before the storm, you can use this credit- provided
you hire him/her by August 27, 2007.
This incentive credits you for 40% of the first $6,000 (up to $2,400) of qualified wages paid to a GO Zone employee during his/her first year of employment.
The employee must perform 400 hours of service to get the full 40% credit. If he/she works more than 120 hours but less than 400 hours, you can take a 25% credit.
What is the incentive for Net Operating Losses?
You can carry back net operating losses (NOLs) incurred by the business
with pre-existing operations in the GO Zone for five years,
instead of the usual two.
This means you can convert your current year operating losses into refunds for taxes previously paid, if it is a qualifying GO Zone loss.
What is a qualifying GO Zone loss?
GO Zone losses include GO Zone casualty losses, moving expenses, temporary
housing expenses, depreciation deductions for GO Zone property and
repair expenses due to Katrina.
Are there any other federal tax benefits?
Yes. There’s also the rehabilitation credit, which gives a 26%
credit for qualified expenditures for a certified historic structure.
It also gives a 13% credit for pre-1936 buildings.
Are there any new financing tools provided by the GO Zone?
Yes. There are GO Zone Tax Exempt Bonds and the GO Loan.
What is the Tax Exempt Bond?
The tax-exempt bond allows private business owners and corporations to
borrow tax-exempt money to cover the cost of purchasing, constructing
and renovating nonresidential real property and qualified residential
rental property (low or moderate housing) in the GO Zone.
The bond must be issued prior to January 1, 2011 through the Mississippi Business Finance Corporation (link to: www.msbusinessfinance.com).
Projects may not include movable fixtures or equipment. Eligible projects might be retail shops, manufacturing and industrial plants, hotels, restaurants, hospitals, etc.
Due to high bond issuance costs, the minimum recommended projects size is $3 million. The interest rate is typically 1.5% to 2% below conventional financing. These bonds must be backed up by a letter of recommendation from a “rated” financial institution and are amortized up to 20 years. Bonds may not be used with bonus depreciation.
Is there a Tax-Exempt Bond for small to mid-sized businesses?
New legislation has been passed to allow more small and mid-sized businesses
to be eligible for GO Zone tax-exempt bond financing. Almost any type
of commercial operation seeking low-interest loans between $350,000
and $4 million to finance the construction or renovation of buildings
or the purchase of new equipment is now eligible for rates of 1.5 to
2.0% lower than conventional financing.
The same rules apply in terms of not being able to use the 50% bonus
depreciation. State tax exemptions are also available with the bond financing.
(Source: Peyton, Tom, June 2007 Newsletter, Vol. 1:Issue 19. Donnell
and Company)
What is the GO Loan?
The GO Loan is a $150,000 maximum loan with SBA 85% guarantee. It is
an expedited loan for disaster area business other than investment
property.
The great thing about this loan is that there is streamlined paperwork for lenders and borrowers, but the loan must be delivered through a preferred lender.
The current deadline for GO Loan applications is September 30, 2007. Contact Greg Butler at the JCJC SBDC (601-477-4165) for more information.
What timber incentives are available?
The 5-year carry back of net operating losses applies to timber. Timber
holders are also entitled to $20,000 reforestation expensing of costs
incurred before 2008.
However, this only applies to those timber holders whose holdings are less than 500 acres total in all locations.
Are there any state GO Zone benefits?
The only benefits that apply to state taxes are the Section 179 expensing
and cleanup and demolition expensing.
How do I know how to use these benefits to invest in my business?
You probably need to sit down with an accountant who is familiar with
these incentives. We recommend Tom Peyton of Donnell and Company, one
of our BAC partners. Not only is his passion in growing small businesses,
but he is also the “Mr. GO Zone” of the Hattiesburg area.
You can reach Tom Peyton at 601-271-8625 in the Hattiesburg office and 601-796-3299 in the Lumberton office. His email address is tom@donnellpa.com.
Where can I call for other information?
Feel free to call our BAC office anytime at 601-544-5682.
Are there any other online resources regarding GO Zone benefits?
Check out these websites.
Mississippi Business Finance Corporation (link to: http://www.msbusinessfinance.com)
Mississippi Development Authority (link to: http://www.mississippi.org/content.aspx?url=/page/3269&)
GO Zone Online (link to: http://www.gozoneonline.com)
GO Zone Guide (link to: http://www.gozoneguide.com)