GULF OPPORTUNITY ZONE ACT OF 2005 (GO Zone)
Congress recently provided additional tax relief to those taxpayers affected by Hurricane Katrina. Below are some of the major tax relief portions of the bill and the Mississippi treatment of these items based on current Mississippi statutes.
- 50% bonus depreciation for one year related to rebuilding
Mississippi statutes do not provide authority to follow federal provisions for bonus depreciation. Mississippi law provides a reasonable allowance for exhaustion, wear and tear of property. Regulation 504, amended in 2002, clarifies that bonus deprecation is not an allowable deduction.
- Expanding Code Section 179 expensing for investments
IRC Section 179 expensing deduction is $100,000 for 2003 through 2007. The new law increases the expensing limitation by the lesser of $100,000 or the cost of qualified section 179 Katrina GO Zone property. It also increases the $400,000 investment limitation by the lesser of $600,000 or the cost of qualified section 179 Katrina GO Zone property placed in service during the tax year. Property purchased after August 28, 2005, and placed in service on or before December 31, 2007, qualifies.
Qualified Katrina GO Zone property means: (1) Property described in section 168 (k)(2)(A)(i) purchased software, leasehold improvements, covered property with a recovery period of 20 years or less, and certain equipment, and (2) certain residential real property or residential rental property, substantially all of which is used in the Katrina GO Zone and is in the active conduct of a trade or business by a taxpayer in the Katrina GO Zone.
Mississippi Regulation 504 provides compliance with federal provisions in determining the amount allowable as a deduction for section 179 property.
- Allowing a five year net operating loss carryback for investments
Mississippi does not allow a five year NOL carryback for investments. Mississippi statute specifically provides net operating loss carry back and carry forward periods (2 years back and 20 years forward).
- Additional clean up / demolition expensing
Mississippi follows federal provisions for the additional clean up / demolition expensing. Taxpayers are allowed to expense 50% of clean-up costs that otherwise would be required to be capitalized. Costs must be paid or incurred after August 27, 2005, and before January 1, 2008, for the removal of debris from, or the demolition of structures on, real property in the Katrina GO Zone. The property must be held by the taxpayer for use in a trade or business or for the production of income or property described in 1221 (a)(1) in the hands of the taxpayer.
- Environmental Remediation Expensing
This extends the section 198 expensing provision for two years. Taxpayers may expense some environmental remediation costs incurred in connection with qualified contaminated sites located in the Katrina GO Zone through December 31, 2007.
Mississippi has a Remediation Tax Credit available to taxpayers who perform remediation activities at brownfield sites in the state. The information must be submitted to and approved by the Mississippi Department of Environmental Quality prior to submission to the Department of Revenue. The amount of the allowable credit is 25% of the remediation costs at the brownfield agreement site as approved by MDEQ. The annual credit is equal to the lesser of $40,000 or the amount of income tax imposed upon at the brownfield site for the tax year. The maximum lifetime credit is $150,000 for the brownfield site.
- Timber Expensing / Carryback
Small timber producers owning less than 500 acres will be allowed to double the expense amounts for qualified timber property. The new law also provides a five year “farming” carryback of specified timber net operating losses.
Mississippi statute provides specific guidance for reforestation credit and net operating losses. Mississippi does not follow federal provisions.
- Public Utility Casualty Losses
Public utilities located in the Katrina GO Zone are eligible for a 10 year carryback on casualty losses. Mississippi does not follow this provision because of statutory limitations. For Mississippi purposes, net operating losses may be carried back two years and forward 20 years.
The Gulf Opportunity Zone Act has several credit provisions available to taxpayers. However, Mississippi does not have statutory authority to allow the same credit provisions for state purposes.