Gulf Opportunity Zone (GO Zone)

BONDS

This Act creates a broad new category of tax-exempt bonds to finance the construction and rehabilitation of residential and nonresidential property located in the Gulf Opportunity Zone. GO Zone Bonds may only be issued for projects approved by the Governor or the bond commission of the State.

Gulf Opportunity Bonds

Gulf Opportunity Zone Bonds are bonds for which 95% or more of the proceeds are used for qualified project costs in the GO Zone. There are two types of GO Zone Bonds:

q Exempt Facility Bonds

q Qualified Mortgage Bonds

Exempt Facility Bonds

Qualified project costs include:

q Those for the acquisition, construction, reconstruction, and renovation of nonresidential real property and public utility property.

q The cost of qualified residential rental projects

o A project is a qualified residential rental project if 20% or more of the residential units in such project are occupied by individuals whose income is 60% or less of area median gross income, or if 40% or more of the residential units in such project are occupied by individuals whose income is 70% or less of area median gross income.

Qualified Mortgage Bonds

Residences located in the GO Zone are treated as targeted area residences. Therefore, the first-time homebuyer rule is waived and purchase and income rules for targeted area residences apply to residences financed with bonds issued under the provision. One hundred percent of the mortgages must be made to mortgagors whose family income is 140% or less of the applicable median family income. In addition, the amount of a qualified home-improvement loan that may be financed with bond proceeds is $150,000.

What the Bonds Cannot Be Used For

Bonds Cannon Be Used For:

q Country clubs, casinos, hot tub facilities, suntan facilities, liquor stores, massage parlors, golf courses, and race tracks.

q Financing movable fixtures and equipment to ensure that property financed with the bonds will remain in the GO Zone.

When Can Opportunity Bonds be Issued?

Until December 31, 2010

What is the limit on the Total Amount that can be issued to the State?

Can the Proceeds of the GO Zone be Used to Acquire an Existing Facility?

Yes, but only if expenditures are made for rehabilitation of the property equal to at least 50% of the amount of proceeds used to acquire the existing property.

DEPRECIATION

Special allowance for certain property acquired on or after August 28, 2005

The Act allows a 50% bonus depreciation allowance for GO Zone business property that is placed in service before 2008 (before 2009, for nonresidential real and residential rental property) and exempts such depreciation allowances from the alternative minimum tax. Qualified GO Zone property is property that meets four requirements:

(i) property to which the general MACRS rules apply and that has a recovery period of 20 years or less,

(ii) computer software not covered by §197 to which the general MACRS rules apply,

(iv) qualified leasehold improvement property to which the general MACRS rules apply,

1. Substantially all of the use of the property must be in the GO Zone and must be in the active conduct of a trade or business by the taxpayer in such Zone.

2. The original use of the property in the GO Zone must begin with the taxpayer on or after August 28, 2005.

3. The property is acquired by the taxpayer by purchase (within the meaning of §179(d)) on or after August 28, 2005, but only if no written binding contract for the acquisition was in effect before August 28, 2005. (However, property is not precluded from qualifying for the additional first-year depreciation merely because a binding written contract to acquire a component of the property is in effect before August 28, 2005.) Qualified GO Zone property does not include property that is depreciated under the alternative depreciation system, tax-exempt bond-financed property, or qualified revitalization buildings.

In electing the depreciation benefit, neither application to nor approval by the State is necessary.

LOW-INCOME HOUSING CREDIT

The Act provides an increase in the housing credit dollar amount for low-income housing. The State housing credit is increased by the lesser of:

2. The aggregate housing credit dollar amount allocated by the state housing credit agency of that state to buildings located in the GO Zone for that calendar year.

q An amount equal to the product of $18.00 multiplied by the portion of the State population, which is in the GO Zone.

The Act states that in the case of property placed in service during 2006, 2007, and 2008 are treated as difficult development areas for purposes of applying difficult development area rules of the low-income credit. The Act also provides that such property is not taken into account for purposes of the metropolitan area limitation. The Act provides that these difficult development area rules apply only to housing credit dollar amounts allocated during the period beginning on January 1, 2006, and ending on December 31, 2008, and to certain buildings placed in service during such period financed by tax-exempt bonds issued after December 31, 2005.