It is hard to believe that it has been four years since Katrina, Rita and Wilma wrought havoc on the coasts of Mississippi, Louisiana, Texas and Florida. As Mississippi continues to recover, the GO Zone tax incentives brought about by Congress after the storms are beginning to expire. Consider how your business might benefit from some of these remaining opportunities.

 

The Katrina Emergency Tax Relief Act of 2005 (KETRA) was passed by Congress on September 23, 2005, and contained tax relief provisions specific to the Hurricane Katrina disaster area. Shortly afterwards when Hurricanes Rita and Wilma hit, Congress reacted further by passing the Gulf Opportunity Zone Act of 2005 (GOZA) in December 2005, which created incentives targeting the rebuilding of the Gulf Coast. KETRA gave us the Work Opportunity Tax Credit (WOTC) for Hurricane Katrina employees, while GOZA gave us the GO Zone bonus depreciation, enhanced Section 179 expensing, and extended Net Operating Loss carryback periods.

 

The WOTC is a dollar for dollar reduction in tax as opposed to a deduction from taxable income. The credit was expanded by KETRA to include a new target group "Hurricane Katrina employees." These employees had their main home in the disaster area on August 28, 2005, and under KETRA, they were hired to work in the core disaster area after August 27, 2005 and before August 28, 2007. The Emergency Economic Stabilization Act of 2008 (EESA) extended that 2-year hiring period to a 4-year hiring period expiring on August 28, 2009. This means the credit was available for tax years 2005 through 2009. The credit could be taken on an amended return as long as the statute of limitations was still open. The credit was generous at generally 40 percent of the first-year wages up to $6,000, or a maximum of $2,400 credit per qualifying employee.

 

Bonus depreciation under GOZA was originally available to all businesses in the GO Zone allowing them to take a special first year deduction of 50 percent of the cost of qualified property placed in service after August 27, 2005 and on or before December 31, 2007 (December 31, 2008 for real estate). This applied to tangible personal property, nonresidential real estate, and residential rental property. Additional time is allowed under the Tax Relief & Health Care Act of 2006 until December 31, 2010 to qualify for bonus depreciation on qualified property in specified portions of the GO Zone. In Mississippi, the counties specified are Hancock, Harrison, Jackson, Pearl River and Stone. Qualified property includes nonresidential real property, residential rental property, and personal property used in such real property placed in service no later than 90 days after the building is placed in service (March 31, 2011 at the latest). 

 

Much like the bonus depreciation changes under the various acts, KETRA provided an increased Section 179 expensing limit to $600,000 through December 31, 2007. In May 2007, P.L. 110-28 was signed extending the time for those five Mississippi counties worst hit to December 31, 2008. While that date has passed, it is possible to make the expensing election on an amended return for 2008.

 

The Net Operating Loss carry-back period was extended from two to five years for qualified GO Zone losses in any tax year ending on or after August 28, 2005. A qualified GO Zone loss would include the portion of your net operating loss attributable to depreciation of GO Zone property, such as those available special deductions discussed previously. For example, losses in 2009 related to GO Zone bonus depreciation would be available for carry-back to tax year 2004. This could mean cash in your pocket through the recovery of taxes paid in earlier years.

 

While the rebuilding of the Mississippi coast continues, we should assess our opportunities and make sure we don't leave any dollars on the table. As you move toward the end of 2009, take the time to contact your professional tax advisor and make plans to capture all of the benefits you can under the expiring hurricane provisions.