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GO Zone Act
Qualifications GO Zone. What is it? The Gulf Opportunity Zone Act, or GO Zone Act, is a terrific opportunity that is generating tremendous interest in investment properties along the Gulf Coast. Unfortunately it is also generating a lot of confusion. There are many investment property offerings that are heavily advertised as qualifying for GO Zone. In fact, most of the properties we offer along the Gulf Coast during our Investing Tours qualify for the GO Zone benefit. You will find that there are many properties that do qualify, so you needn’t worry about having to look too hard for GO Zone eligible properties. You do, however, have to make sure you qualify to take the GO Zone deduction. Both the property and the individual must qualify to use GO Zone, and that doesn’t make all of the GO Zone opportunities great investments. In a nutshell the GO Zone benefit allows you to take a 50% bonus depreciation deduction against the qualifying property in its first year in service. This deduction can be carried back 5 years or forward 20 years from the year the property was first placed in service. This means you can amend 5 years of tax returns if you don’t have enough income in that first year to use up the entire depreciation. This can generate tremendous tax savings. For example, if you purchased a new construction single family home for $180,000. The GO Zone tax deduction would look roughly like this:
That’s a pretty substantial tax deduction, which as we said can also be carried forward or backward. If you are in the 33% tax bracket that can mean an actual cash savings of $26,730. That’s a pretty substantial return on your investment just for the tax savings. You can see why the GO Zone Act is generating such interest. We look at the GO Zone Act as a terrific bonus for an investment property, but the investment needs to stand on its own without the GO Zone. There are two reasons for this. First, because there are so many GO Zone eligible investment opportunities along the Gulf Coast you’ll want to choose the best investment opportunities. In other words, if you are trying to choose between two investments, both of which are GO Zone eligible and one is great without GO Zone and the other is not so strong without GO Zone, you’ll obviously choose the one that is strong even without GO Zone. There are a few simple steps to determine your qualifications for GO Zone. The first is the Real Estate Professional’s test. If you qualify as a real estate professional, you can deduct the entire GO Zone deduction against all other forms of income (including regular wages). To determine if you are a real estate professional you need to answer the following two questions (these questions are the IRS criteria for determining if you are a real estate professional: FIRST TEST: Are more than half of personal services in all businesses (T/B) for the year performed in real property and rental real estate? Real property = real property development, construction, acquisition, conversion, rental operation, management, leasing or brokerage. Time spent as an employee in real property activities counts only if the taxpayer is more than a 5 percent owner. SECOND TEST: Does taxpayer spend more than 750 hours in real property businesses and rentals in which he materially participates? If you are able to answer yes to both tests then you may qualify as a real estate professional. That means you can use the $81,000 GO Zone tax deduction from our example against all other income. If you answered no to one or both of the questions then your GO Zone deduction is more limited. If your Adjusted Gross Income (from your 1040 tax return) is less than $100,000 you are eligible to deduct up to $25,000 against other passive income (meaning other rental property). If you don’t have $25,000 in other passive income, that deduction can be carried forward until it is used or the property is sold, at which point it would be deducted against your profit from the sale. You cannot deduct this amount against non-passive income, like W-2 wages. As your Adjusted Gross Income increases beyond $100,000 the $25,000 deduction is reduced by $1 for every $2 over $100,000 (meaning if your AGI is $120,000 you would be able to take a $15,000 deduction. If your Adjusted Gross Income is greater than $150,000, then you cannot take the deduction at all. We strongly advise you to work with your accountant or tax attorney to clearly determine your appropriate GO Zone eligibility status, we do not intend in this article to replace that assistance. We have several tax attorneys we work with on Investing Tours and you are welcome to contact them, please contact our office and we will happily give you their contact information. This is why we
look at the GO Zone as a great bonus if you qualify, because not
everyone will. Without question if you qualify the GO Zone
deduction is stupendous and makes a great investment even
better. What really excites us about the Mississippi Gulf Coast
is that it is one of the best real estate markets in the country
right now, even without the GO Zone. That means even if
you don’t qualify for the GO Zone at all, the Mississippi Gulf
Coast still holds excellent real estate investment opportunities
for you. There are not better Talk to a tax attorney or professional if you would like more information on the GO Zone. We have 2 tax attorneys on our website with additional articles to assist you with any questions you have about GO Zone. Visit us at www.InvestingTours.com.
Justin Ryan &
Wendy Patton |
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