GO Zone Depreciation And Related Losses
The jury is still out on if you can apply passive losses to active income. I recently attended a confrence on the Go Zone with senator Sessions and congressman Bonner along with the IRS and the dept of HUD. They are just as confused about who this applies too. as we are They promissed to answer any questions we had after the confrence in writing. Im still waiting.
I would encourge you to check and make sure that county is included! I dont remember tuscaloosa being included....
you are right though, it doesnt make since to apply such a small limit on it, limited to a small number of realestate pros
If you hear anything. please let me know. And FYI, I confirmed that Tuscaloosa county is included in the GO Zone.
Thanks
How does the bonus depreciation work?
Since the standard residential recovery period is 27.5 years, the average annual depreciation rate is about 3.64%. If your depreciation basis is $50K, then this gives you a depreciation expense of about $1820.
If this is increased by a 50% bonus in the first year, then the first year depreciation expense in this example becomes $2730.
Seems like you could buy quite a few rental properties before your $25K passive loss allowance is depleted.
50% bonus is 50% of cost, not 150% of normal depreciation. In your example, 1st year depreciation would be 25,910. 50% of cost plus + (Regular depreciation on 50% remaining basis.
I hope that helps.
Do you have a reference that I can review that may give me more details? I would like to learn more.
Here is an exerpt from an article in the Oct 3, 2005 issue of BusinessWeek magazine. The title of the article is A Conservative New Deal For The Gulf Coast "Businesses could take accelerated depreciation for investments in equipment and structures, with small companies deducting up to $200,000 a year and larger companies writing off 50% of investments immediately".Since there is no mention of residential real estate, it sounds like this bonus depreciation only applies to business structures and equipment.
Well said stewart. My phone has really started ringing for GO ZONE property, so investors are really stating to catch on. Its amazing to watch how many parcils of land suitable for apartments that have gone pending in the last couple of weeks around here. Our condo market at the gulf is starting to pick up as well. Im still waiting for the IRS to put in writing if the deprection can be taken against acitive income and not limited to the $25,000 passive loss limitation!!
Still waiting on IRS guidance. One thing I did find is that if its considered an active trade/business, all gains are ordinary and taxed at marginal federal rates as high as 35%. If you employ a buy/hold strategy, dealer status might be good, but if there are substantial profits to be had, the capital treatment of gain might be a better alternative. I wonder if you could be classified as an active trade/business in year 1 and then scale back in the year of sale to get the best of both worlds?
FYI - the IRS just released an announcement as follows:
IRS Announcement 2006–29 Extending Depreciation Benefit Deadline For Taxpayers in Areas Affected by Hurricanes Katrina, Rita, and Wilma
You can go to www.IRS.gov to read details on the announcement and extension.