GO Zone Depreciation

By Lesli S. Laffie, J.D., LL.M.

Notice 2007-36 contains guidance on the extended placed-in-service dates for the 50% additional first-year depreciation available for certain Gulf Opportunity (GO) Zone property and provides additional rules on the “original use” requirement. (GO Zone property is depreciable property that meets the definitions in Sec. 1400N(d)(2) and Notice 2006-77, Section 2.02.) These rules require that the (1) property’s original use commence with the taxpayer in the GO Zone after Aug. 27, 2005 and (2) property be placed in service by the taxpayer before 2008 or 2009.

The Tax Relief and Health Care Act of 2006 extended these placed-in-service dates for certain properties until Dec. 31, 2010. Assuming all other requirements are met, the extended placed-in-service dates are available to properties located in the (1) Louisiana parishes of Calcasieu, Cameron, Orleans, Plaquemines, St. Bernard, St. Tammany and Washington; and (2) Mississippi counties of Hancock, Harrison, Jackson, Pearl River and Stone.

The bonus depreciation deduction is available only for the adjusted basis of such property attributable to manufacture, construction or production before Jan. 2, 2010. These amounts, referred to as “progress expenditures,” are amounts paid or incurred and properly chargeable to capital account with regard to the property. Progress expenditures properly chargeable to capital account depend on whether the property was produced by the taxpayer or someone else for the taxpayer. The progress expenditure rules do not apply to property described in Sec. 1400N(d)(6)(B)(ii)(II) and certain types of personal property. For purposes of the GO Zone rules, “original use” means the first use to which the property is put, whether or not that use corresponds to the property’s use by the taxpayer. Used and reconditioned property can qualify under certain circumstances, as long as it has not been previously used within the GO Zone.

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