The GO Zone

It’s been a couple of years since I’ve seen any real estate investment to get excited about, but I’m really excited about this! It’s called the Gulf Opportunity Zone Act, signed by President Bush on December 21, 2005. It offers 50% bonus depreciation the first year you buy newly constructed real estate in certain areas along the Gulf of Mexico. The intention is to stimulate jobs in the areas hard hit by hurricanes, but you can buy in areas far from the coast, like Tuscaloosa, and still take the depreciation!

What does that mean exactly? Say you buy a house for $150K. Normally, you would say the land is worth about $50K, and the house $100K. You would then depreciate the house over 27.5 years, or $3,636 a year, and you would take that off your taxes. (Note! Please check your tax advisor to see how this applies to you, because depreciation can be limited or get phased out at certain income levels.)

Now imagine taking $50K off your taxes that first year you buy a property. Yes, you read that right, FIFTY THOUSAND written off! I don’t know about you, but if you’re in the 28% fed tax bracket and 9% state, that means you save 37% of $50K on your taxes, or $18,500. You simply send Uncle Sam $18,500 LESS in taxes than you would if you didn’t buy a house in the GO Zone.

And prices are still low in these areas of Louisiana, Mississippi, Alabama, and the Florida panhandle. You can buy houses for 10% down that just about break even. What is 10% down on a $150K house? That’s right, $15K. Where do you get the $15K? Uncle Sam gives it to you! That $18,500 that you don’t spend in taxes is just about enough to cover your down payment and closing costs. Let’s see, should you send the money to the government and have nothing to show for it, or use the money as down payment on an investment house? It’s a no brainer!

Now you have absolutely no excuse for not retiring rich… Uncle Sam is GIVING you the money to do it! And what to you think will happen to house prices in the Gulf when the government pours all this money into the area? I predict they will go up, making this a sweet investment indeed.

Disclaimer! I’m not a CPA, so you MUST check with your accountant to see if what I’m telling you is true for your situation. The IRS publication concerning the GO Zone is http://www.irs.gov/pub/irs-pdf/p4492.pdf

My mind is spinning with the possibilities! The Act runs until 2008, so you can buy a house this year, and one in 2008. Keep them a few years and then 1031 exchange them for an apartment building in an up and coming area that spins off cash flow to you for the rest of your life. All done with no money out of your pocket, just money you would have spent in taxes! It just doesn’t get any better than this!

I'm involved in a couple of new homes outside of Gulfport, MS. I’m exploring several other areas as well, and I’ve talked with many agents in the GO Zone. So give me a call if you’re interested in this, and I can put you in touch with agents who specialize in working with investors. My number is 760-730-1310.

Happy Investing!