If you are reading this article, you should already know about the Gulf Opportunity (or \”GO\”) Zone and the tax benefits associated with purchasing real estate in the area. For those who have not, do a Google Search on \”GO Zone Education\” and read up on the topic from the folks at GoZoneOnline. With that said, the end of 2010 brought about many splendid holiday wishes to the real estate investment world. Specifically, 2 major things happened:

1. The GO Zone legislation was extended (again); and
2. The GO Zone extension was finally \”fixed\”!

GO ZONE LEGISLATION UPDATE

On December 17th, 2010, President Obama signed tax cut legislation into law that also extended (and fixed) the GO Zone benefits.

The specifics of the new legislation can be found in the \”Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act\”. For those with the urge to read up on this, you want to focus on Section 765 of this act. There you will see where changes have been made to the dates for the Bonus Depreciation Deduction Applicable to the GO Zone.

THE WAY IT WAS

Prior to this, the last GO Zone extension extended the GO Zone benefits until the end of 2010, but only on the construction/improvements that were completed prior to end of 2009.

Said another way, the only way to have received GO Zone benefits on purchases in 2010 would be by either purchasing a home whose improvements were completed in 2009, or whose majority of improvements were done by such time. This was all fine at the beginning of the year, but as the clock ticked towards the end of the year, it was very hard to find properties that still met all the criteria that the IRS imposes on these purchases so that you may benefit from the bonus depreciation.

GO ZONE BENEFITS NOW

With the signing of the new legislation, the time lines of the benefits are now extended to December 31, 2011. To benefit from the GO Zone tax benefits, all purchases must be completed prior to the end of this year. Pretty straight forward.

SO WHAT WAS \”FIXED?\”

If a straight extension by 1 year would have occurred, then what you would be looking at now would have been benefits extended until December 31st 2011 on construction/improvements completed on/before December 31st 2010.

HOWEVER…the new legislation also moved the deadline for the construction/improvements until on/before December 31st 2011! This is a BIG deal for GO Zone investors as it opens up new construction starts this year that will finished in time to take complete advantage of the IRS Tax benefits.

WHAT DOES THIS MEAN (AS AN EXAMPLE)?

Needless to say, the amount of tax benefits that you can take will depend on your circumstances and the amount of the home(s) that you purchase in the GO Zone. As an example, let\’s assume that a single family home (new construction) in Ocean Springs Mississippi costs $160,000 and, for the sake of this example, let\’s also assume the that land only costs $20,000. For this example, the cost of the improvement is $140,000. Simple math then leads to the 50% bonus depreciation available being $70,000 just for that single purchase.

So, how would you like to save $70,000 on your tax bill this year?

CONCLUSION

Needless to say, the possibilities are endless in terms of your tax benefits, bonus depreciation, etc. The only limitations would then be how many of these GO Zone homes would you like to (and could you) purchase? That is a topic that we will touch on next: Your financing options in the GO Zone.

Author Bio: Michael C. Zari leads GoZoneOnLine.com, a free real estate investing club without the hype. His works have been referenced in venues including NY Times and USA Today. To get his thought-provoking articles, go to Real Estate Investing Club!

Category: Real Estate
Keywords: Real Estate, Investment, GO Zone, Gulf Opportunity Zone, IRS, Bonus Depreciation, Tax Savings