Reports - Mississippi Renewal

152 | FINANCEGulf Opportunity Zone ActIn addition to these generous appropriations,Congress has passed the KatrinaEmergency Tax Relief Act of 2005(H.R. 3768). This new law gives HurricaneKatrina victims, both individualsand businesses, temporary tax breaks.The most significant legislation, however,may be the federal legislation establishinga Gulf Opportunity Zone(the “Zone”) where businesses locatedin the Zone would enjoy certain taxbenefits and incentives, similar to thoseoffered in lower Manhattan in 2002.These business incentives certainly arecritical to rebuilding the Coast and areessential for the areas affected by Katrinato regain some sense of normalcy.There is no doubt that the vast majorityof money that is going to rebuildthe Mississippi Gulf Coast must comefrom the private sector; that is, largelyprivate investments. Gulf OpportunityZone Legislation provides tax incentiveswithout requiring the direct appropriationof funds by the federal government.It is expected that up to 50 Mississippicounties, essentially those south ofthe line from Vicksburg to Columbus,will qualify for at least some of the anticipatedredevelopment incentives. Abrief outline of the significant incentivescontained in the proposed legislationfollows.■ 50 Percent Bonus Depreciation. Thefirst incentive relates to certain propertybought after August 28, 2005,that is used in a trade or business.Generally, this incentive will allowan additional deduction for depreciationof 50 percent the year the purchasedproperty is placed in service.Property that is eligible for this bonusdepreciation deduction includesmost types of depreciable real property.Of particular importance is thefact that, unlike the legislation passedpost-September 11, it is expectedthat the bonus depreciation will beavailable not only for costs incurredon rebuilding projects but also newprojects as well.■ Tax-exempt Bonds. The second incentivewould allow the state of Mississippito issue a limited amount oftax-exempt, private activity bonds tofinance the development of a widearray of commercial projects in theZone after August 29, 2005.■ Bonds would be available to almostall business sectors (gamingis excluded).■ Bonds would be tax exempt whichshould result in savings of up to200 basis points in interest costsper annum.■ As under current law, an applicantwill not have access to both the 50percent bonus depreciation andthe tax-exempt bonds.■ Net Operating Loss Carryback. Thelast incentive would allow an extendedcarryback period for net operatinglosses by businesses with preexistingoperations in the Zone. Suchan extension may assist taxpayers tomore quickly convert operating losses(including any resulting from thetax benefits discussed above) into taxrefunds.■ Other Important Provisions. Thelegislation contains a number ofother important incentives and reliefprovisions that are importantto businesses considering an investmentin the Mississippi Gulf Coast,including:■ Increase in Qualified RehabilitationCredit. The credit for qualifiedexpenditures for an historicstructure was raised to 26 percentand for other qualified structuresto 13 percent.■ Expensing Rules for Demolitionand Clean-up. Ordinarily demolitionand site clean-up costs mustbe capitalized. Special rules permitexpensing of up to 50 percentof such costs incurred through2007.■ New Market Tax Credit AuthorityIncreased. The allowable creditis equal to 39 percent of qualifyinginvestments in low-incomecommunities. To qualify, the investmentmust be made by anauthorized community developmententity. An additional $1 billionin authority was granted forthe years 2005 - 2007.■ Reforestation Incentives for SmallTimber Owners. The cap on thedeductibility of reforestation costswas doubled to $20,000 per yearthrough 2008 and a special fiveyearNOL carryback for smalltimber operations was authorized.To qualify, the timber owner mustown less than 500 acres of timber■ Low-Income Housing. The Actauthorizes almost $40 Millionin additional low-income taxcredits for Mississippi. Additionalprovisions will increase the creditsavailable to investors for newconstruction and rehabilitationexpenditures.■ Expensing of Qualified EnvironmentalClean-up Costs. Thedeductibility of environmentalclean-up costs incurred on qualifyingsites was extended for twoyears and applies to the clean upof petroleum products. To qualify,costs must be incurred from August27, 2005, through 2007.