SECTION 2. BACKGROUND AND GO

ZONE PROPERTY

.01 Section 1400N(d) 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 (including GO Zone extension property) is made in accordance with rules similar to the rules for 50-percent bonus depreciation property in § 1.168(k)–1(d)(1)(i), (1)(iii), and (2) of the Income Tax Regulations. Further, rules similar to the special rules in § 1.168(k)–1(f) apply for purposes of the GO Zone additional first year depreciation deduction.

.02 GO Zone property is depreciable property that meets all of the requirements in § 1400N(d)(2) and in section 2.02 of Notice 2006–77, as clarified, modified, and amplified by section 5 of Notice 2007–36, 2007–17 I.R.B. 1000. GO Zone extension property is depreciable property that meets all of the requirements in

§ 1400N(d)(6)(B) and in section 4 of Notice 2007–36. One of the requirements of GO Zone property and GO Zone extension property is that substantially all of the use of the property must be in the GO Zone and in the active conduct of a trade or business by the taxpayer in the GO Zone. Section 3.01 of Notice 2006–77 defines the term “substantially all” as meaning 80 percent or more during each taxable year. Depreciable property described in § 1400N(d)(2)(B) and in section 2.03 of Notice 2006–77 is not eligible for the GO Zone additional first year depreciation deduction.

.03 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).

.04 Section 1400N(d)(5) provides that for purposes of § 1400N(d), rules similar to the recapture rules under § 179(d)(10) apply with respect to any GO Zone property that ceases to be GO Zone property. Section 6 of Notice 2006–77 provides the rules for applying the recapture requirement described in § 1400N(d)(5). The Treasury Department and the Internal Revenue Service have learned that taxpayers are uncertain how to apply these recapture rules to GO Zone property (including GO Zone extension property) relinquished by a taxpayer in a like-kind exchange under § 1031 or as a result of an involuntary conversion under § 1033. This notice clarifies the application of the recapture rule in § 1400N(d)(5) to such property.