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GO ZONE BASICS

Disclaimer: This summary is intended to be a general overview only of how the act pertains to new homes built in Hancock County. Eligibility and other requirements should be discussed with a tax professional.

WHAT IS THE GO ZONE?
Federal legislation passed by Congress and signed into law by President Bush in December of 2005. It provides federal tax incentives for areas affected by Hurricane Katrina, including incentives for residential rental property constructed and placed in service after August 28, 2005 and before December 31, 2010.

WHAT ARE THE BENEFITS FOR NEW CONSTRUCTION?
The benefit is an accelerated 50% tax depreciation in year the property is placed in service. Typically, residential rental property is depreciated evenly over 27.5 years. With the Go Zone benefit, 50% of the property value can be depreciated in the first year, and the remaining 50% is depreciated over 27.5 years.

EXAMPLE
As an example, assume that that the new rental home you placed in service was purchased for $130,000 of which the land is valued at $10,000. The depreciable basis (home value) is $120,000. The comparison depreciation in the first two years for the property with and without the benefit is as follows:
With Go Zone Without Go Zone
Year 1 $61,091 $2,181
Year 2 $2,181 $4,363


If you are in a 30% tax bracket, this would mean that your tax savings in the first year with the GO Zone benefit would be $18,327 as opposed to $654 without it.

IS EVERYONE THAT PLACES HOME IN SERVICE IN A Go ZONE ELIGIBLE FOR THE TAX BENEFIT?
The tax deduction can only be applied against passive income* unless the taxpayer is qualified as a “real estate professional”. A real estate professional is defined as someone that spends more than 750 hours a year in a real property trade or business and more than half their time in a real property trade or business. Passive investors can usually only take the loss against passive income, but real estate professionals can offset other income such as wages, salaries, dividends and interest.

* Passive income is defined as income generated by an activity in which the taxpayer does not materially participate. Examples include income from rental property, income from equipment leasing, and income from a business in which you do not materially participate. Passive income does not include dividends, interest, or gains from the sale of stocks.

WHEN DOES THE BENEFIT EXPIRE?
For homes in the Mississippi Gulf Coast area, the home must be placed in service prior to Dec. 31, 2010.

WHAT IF I CAN'T USE THE ENTIRE DEDUCTION IN THE FIRST YEAR?
Net Operating Losses generated in the GO Zone due to depreciation deductions can be carried back 5 years and forward 15 years. In some situations you may be able to re-file prior year returns and obtain refunds on previously paid taxes.

WHAT HAPPENS IF I SELL THE PROPERTY?
The amount of depreciation you take on any home reduces your basis in the home. When you sell your home, you pay taxes on the difference between the sales price and your basis in the home at the capital gains rate of 15%. However the bonus depreciation taken must be recaptured as ordinary income if the property is sold before the end of its useful life. The amount of ordinary income recapture will be equal to the excess of the bonus depreciation claimed minus the amount of depreciation that would normally be claimed at the time the property is sold.

OUR 4-STEP STRATEGY

Diversified makes real estate investing easy and convenient, because we develop the strategy, investigate the opportunity, and perform the evaluation.  Here’s how it works:

1.    We identify the opportunity – Researching various markets and selecting areas with strong value-building potential

2.    We build what the market demands – For example, our current developments in Mississippi consist of family-type housing below the $150,000 range, because that’s where the need is most critical…and where the homes are most marketable.

3.    We offer you “less-stress” financing – and the ability to own an investment home for as little as 10% down.  Plus, our builders may pay a substantial portion of closing costs! 

4.    We monitor the entire process – providing you with customer support each step of the way.  And we assist you with your exit strategy when it’s time to sell.

PROVEN STRATEGIES THAT WORK FOR  YOU!