The Go Zone – As most real estate investors searching the web for real estate investments, chances are you have run into a term called the Gulf Opportunity Zone Act, aka, the Go Zone. For those that are still researching, the layman term definition for Go Zone is this: The Go Zone is a tax incentive offered by Congress and the IRS which offers real estate investors a 50% bonus depreciation on rental property purchased in designated areas in Mississippi affected by Hurricane Katrina. Real Estate depreciation is calculated annually on the 27.5 Year Straight Line Method. Your 50% bonus depreciation is an ADDITION to your typical annual calculations. Due to the high net loss on the property, the IRS allows investors to carry their depreciation forward 15 years or back 5 years.
Investors looking to benefit from the Go Zone should contact their tax guy to find out more details. We have found a lot of out of state CPA and accountants are not very up to speed on the terms of the go zone, therefore, we highly recommend looking into an accountant/ attorney in the local Mississippi market who specializes in this to help you understand your benefit.
Without getting long winded in this article, we will show an example. If you purchase a duplex from a developer in preconstruction status, assuming you purchased it for $240,000, your 50% bonus depreciation may or may not be calculated off of the $240,000. First, the land cannot be depreciated, only the structure value. Assuming your land allowance in the $240,000 was $20,000, your structure value would remain at approximately $220,000. After the first year of ownership for that tax cycle, you are allowed to depreciation your duplex by $110,000 PLUS the normal depreciation which calculates to approximately $5,000, totalling a $115,000 total depreciation. JUST AFTER THE FIRST YEAR.
Most people are in different income tax brackets. Assuming you fall in the 30% tax bracket, what you would do to calculate your actual pocket savings in tax payment is to multiply your total depreciation of $115,000 times your 30% bracket. This would give you a pocket saving of $34,500. Think about this. If you pay for instance $35,000 annually in income taxes, by purchasing high demand rental property in these areas, you can apply your hard earned money to the real estate, which allows a huge income tax incentive nearly wiping out all of your tax liability. So instead of paying the government your money, you can reinvest the money into a tangible asset that you would own.
We have purchased and built several go zone investments in Mississippi. The picture in this article is a duplex or 2 family home we have recently assisted in the design for. If you are interested to learn more about Go Zone Real Estate Investing and how it may or may not fit into your criteria, please contact us today