SECTION 4. GO ZONE EXTENSION

PROPERTY

.01 Definition . GO Zone extension property is depreciable property that meets all of the following requirements:

(1) Property that is described in § 1400N(d)(2)(A)(i), (ii), (iii), and (iv), and in sections 2.02(1), (2), (3), and (4) of Notice 2006–77 (as modified by section 5 of this notice);

(2) Property that is not described in § 1400N(d)(2)(B) and in section 2.03 of Notice 2006–77;

(3) Substantially all of the use of the property is in one or more specified portions of the GO Zone (as defined in section 3 of this notice). For purposes of this section 4.01(3), the term “substantially all” means 80 percent or more during each taxable year. If greater than 20 percent of the use of the property is outside the counties and parishes designated as being part of the specified portions of the GO Zone, then the property is not GO Zone extension property under § 1400N(d)(6); and

(4)(a) 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 and placed in service by the taxpayer on or before December 31, 2010; or

(b) In the case of a taxpayer that places in service on or before December 31, 2010, a building (as defined in § 1.48–1(e)(1)) that is described in section 4.01(4)(a) of this notice and is GO Zone extension property, property that is described in § 168(k)(2)(A)(i) and § 1.168(k)–1(b)(2)(i) if substantially all of the use of such property is in the building and such property is placed in service by the taxpayer not later than 90 calendar days after the building is placed in service by the taxpayer. For purposes of this section 4.01(4)(b), the term “substantially all” means 80 percent or more during each taxable year. If greater than 20 percent of the use of the property is not in the building, then the property is not GO Zone extension property. Further, land improvements that are not in the building (for example, the

sidewalks surrounding the building) are not GO Zone extension property. Moreover, if the building that is described in section 4.01(4)(a) of this notice and is GO Zone extension property is a multi-story building and the floors of that building are placed in service by the taxpayer on different dates, the taxpayer must place in service the property described in this section 4.01(4)(b) not later than 90 calendar days after the entire building is placed in service by the taxpayer but not later than March 31, 2011.

.02 Determination of Adjusted Basis Qualifying for the GO Zone Additional First Year Depreciation Deduction .

(1) Property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice . (a) In general . In the case of GO Zone extension property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice (GO Zone extension real property), § 1400N(d)(6)(D) provides that the GO Zone additional first year depreciation deduction is available only for the adjusted basis of such property attributable to manufacture, construction, or production before January 1, 2010. The amounts of adjusted basis of the property attributable to manufacture, construction, or production before January 1, 2010, are referred to as “progress expenditures.”

(b) Determination of progress expendi- tures . For purposes of § 1400N(d)(6)(D), progress expenditures for GO Zone extension real property that is manufactured, constructed, or produced generally is the amount paid or incurred that is properly chargeable to capital account with respect to the property. The amount that is properly chargeable to capital account for purposes of § 1400N(d)(6)(D) also includes any other costs paid or incurred by the taxpayer, such as interest, or any other direct or indirect costs that are required to be capitalized under § 263A(a) and the regulations thereunder with respect to the manufacture, construction, or production of the property.

For GO Zone extension real property actually manufactured, constructed, or produced by the taxpayer, the amount paid or incurred by the taxpayer is properly chargeable to capital account at the time and to the extent that the amount is properly includible in computing basis of the property under the taxpayer’s method of

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reconditioned or rebuilt building. Of E ’s total cost of the building ($8,000,000), $5,000,000 does not qualify for the GO Zone additional first year depreciation deduction because this amount is attributable to property previously used in the GO Zone. However, the remaining amount of $3,000,000 is for improvements that were not previously used in the GO Zone and, thus, satisfies the original use requirement. Assuming all other requirements are met, E may claim the GO Zone additional first year depreciation deduction for the $3,000,000 cost of the improvements.

Example 4 . The facts are the same as in Ex- ample 3, except that D incurs $7,000,000 of capital expenditures to renovate and improve the closed building, all of the $7,000,000 capital expenditures are components and properties not previously used in the GO Zone, and the fair market value of these improvements at the time of the sale of the building to E is $7,000,000. Of E ’s total cost of the building ($8,000,000), $1,000,000 is attributable to the part of the building previously used in the GO Zone and $7,000,000 is attributable to the improvements made by D that were not previously used in the GO Zone. Consequently, only 12.5 percent of E ’s total cost of the building is attributable to used parts and, thus, E is treated as purchasing a new building (and not a reconditioned or rebuilt building). Thus, E ’s total cost of the building ($8,000,000) satisfies the original use requirement. Assuming all other requirements are met, E may claim the GO Zone additional first year depreciation deduction for the $8,000,000 cost of the building.