Tax Benefits in the Mississippi GO-Zone

THE "GO-ZONE": 50% First Year Bonus Depreciation ($70,000+) on Tarabrooke Properties

Five years ago, Congress passed The Gulf Opportunity Act of 2005 (HR 4440), designating certain areas of Louisiana, Mississippi and Alabama as the Gulf Opportunity Zone, or “GO-Zone”, and introduced the most extraordinary tax benefits for real estate professionals in the history of the United States.

GOOD NEWS: The Remaining Tarabrooke Units are Qualified GO-Zone Properties!

Most of the GO-Zone expired at the end of 2008 but a small sub-section was extended, including 4 counties in Mississippi, with the criteria that the properties must have construction completed by the end of 2009 AND must be put into service by the end of 2010.

In an attempt to incentivize the rebuilding of areas affected by Hurricane Katrina the Act allows real estate professionals, who buy newly constructed properties in the GO-Zone and put them into service by the deadline, the following benefits:

  • 50% first year bonus depreciation
  • 5 year net operating loss carry back
  • 20 year net operating loss carry forward

What the heck does all that mean, and how do I know if I can benefit from the GO-ZONE if I buy in Tarabrooke?

Normally a residential investment property is depreciated over 27.5 years, which comes out to 3.64% per year. That means if you buy a regular property for $173,000, and the land is worth about $25,000, the value of your structure (called your “depreciable basis”) would be $148,000. Normally, you would depreciate this over 27.5 years, giving a paper “loss” that can be written off of $5,387 per year.

If you qualify as a "real estate professional" for tax purposes and you buy this same property in the GO-Zone (Tarabrooke!), it generates a 50% first year bonus depreciation, which means instead of a $5,387 first year depreciation, it would generate a $74,000 first year depreciation! And you are allowed to carry this "loss" backwards 5 years, take it against income you have already paid taxes on, and get a refund from the government! So, If you are in the 35% tax bracket, that is a tax refund of $25,900! If you put $34,600 down on this property, that would be a 74% cash on cash return JUST FROM THE TAX INCENTIVE ALONE. And that doesn't include any cash flow or appreciation.

If you are NOT a real estate professional but you make less than $100,000 per year, you can only take $25,000 of total real estate losses against your other income. So, if you made exactly $100,000 of taxable income, and this was your only investment property, you could take the $74,000 loss against your earned income spaced out over a 3 year period. Since you are in the 28% bracket that would be a tax savings of around $7,000 per year! If you make between$100,000 and $150,000, the amount of real estate losses you can take against your earned income phases out.

  • AMT Exemption: GO-Zone bonus depreciation is not subject to restrictions of alternative minimum tax (AMT).
  • For more information on the Go-Zone, Download Our Report (includes web links to relevant sections of the IRS Code)
  • You should consult your CPA about your individual situation, applicable law, and recapture regulations.