SECTION 2. BACKGROUND AND GO

ZONE PROPERTY

.01 Section 1400N(d), added by section 101 of the Gulf Opportunity Zone Act of 2005, Pub. L. No. 109–135, 119 Stat. 2577, generally allows a 50-percent additional first year depreciation deduction for GO Zone property. The GO Zone additional first year depreciation deduction is allowable in the taxable year in which the GO Zone property is placed in service by the taxpayer. The computation of the allowable GO Zone additional first year depreciation deduction and the otherwise allowable depreciation deduction for GO Zone property is made in accordance with rules similar to the rules for 50-percent bonus depreciation property in § 1.168(k)–1T(d)(1)(i), (1)(iii), and (2) of the Income Tax Regulations.

.02 GO Zone property is depreciable property that meets all of the following requirements:

(1) Property that is described in § 168(k)(2)(A)(i) and § 1.168(k)–1T(b)(2)(i), or property that is nonresidential real property (as defined in § 168(e)(2)(B)) or residential rental property (as defined in § 168(e)(2)(A)) and depreciated under § 168;

(2) Substantially all of the use of the property is in the Gulf Opportunity (GO) Zone (as defined in § 1400M(1)) and in the active conduct of a trade or business by the taxpayer in the GO Zone (for further guidance, see section 3 of this notice);

(3) The original use of the property commences with the taxpayer in the GO Zone on or after August 28, 2005. For purposes of this section 2.02(3), rules similar to the original use rules

in § 1.168(k)–1T(b)(3) apply. In addition, used property will satisfy the original use requirement so long as the property has not been previously used within the GO Zone;

(4) The property is acquired by the taxpayer by purchase (as defined in § 179(d) and § 1.179–4(c)) on or after August 28, 2005, but only if no written binding contract for the acquisition of the property was in effect before August 28, 2005. For purposes of this section 2.02(4), the rules in § 1.168(k)–1T(b)(4)(ii) (binding contract), rules similar to the rules in § 168(k)(2)(E)(i) and § 1.168(k)– 1T(b)(4)(iii) (self-constructed property), and rules similar to the rules in § 168(k)(2)(E)(iv) and § 1.168(k)– 1T(b)(4)(iv) (disqualified transactions) apply; and

(5) The property is placed in service by the taxpayer on or before December 31, 2007 (December 31, 2008, in the case of qualified nonresidential real property and residential rental property).

.03 Depreciable property is not eligible for the GO Zone additional first year depreciation deduction if:

(1) The property is described in § 168(k)(2)(D)(i) and § 1.168(k)– 1T(b)(2)(ii)(A)( 2 ); (2) The property is described in § 168(f);

(3) Any portion of the property is financed with the proceeds of any obligation the interest on which is tax-exempt under § 103;

(4) The property is a qualified revitalization building (as defined in § 1400I(b)) for which the taxpayer has made an election under § 1400I(a)(1) or (a)(2) in accordance with section 7 of Rev. Proc. 2003–38, 2003–1 C.B. 1017; (5) The property is included in any class of property for which the taxpayer elects not to deduct the GO Zone additional first year depreciation (for further guidance, see section 4 of this notice);

(6) The property is described in § 1400N(p)(3) (for further guidance, see section 5 of this notice);

(7) The property is placed in service and disposed of during the same taxable year. However, rules similar to the rules in § 1.168(k)–1T(f)(1)(ii) and (iii) (tech

nical termination of a partnership under § 708(b)(1)(B) or transactions described in § 168(i)(7)) apply; or

(8) The property is converted from business or income-producing use to personal use in the same taxable year in which the property is placed in service by a taxpayer.

.04 The counties and parishes in Alabama, Louisiana, and Mississippi that comprise the GO Zone are listed on page 2 of IRS Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, under Gulf Opportunity (GO) Zone (Core Disaster Area).

.05 If depreciable property is not GO Zone property in the taxable year in which the property is placed in service by the taxpayer, the GO Zone additional first year depreciation deduction is not allowable for the property even if a change in use of the property subsequent to the placed-in-service year of the property results in the property being GO Zone property. See § 1.168(k)–1T(f)(6)(iv)(B).

.06 Limitation provisions of the Code (for example, §§ 465, 469, and 704(d)) apply and may limit the amount of the GO Zone additional first year depreciation deduction that may be claimed by a taxpayer subject to such a provision.