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The Gulf Opportunity Zone Act of 2005

Timber Owners in Gulf Opportunity Zone, Rita Gulf Opportunity Zone, and Wilma Gulf Opportunity Zone get reforestation and net operating loss help (The Gulf Opportunity Zone Act of 2005, P.L. 109-135) (posted 1/17/06)

Reforestation Deduction Increased

Timber owners in these three hurricane damage zones can deduct up to $20,000, $10,000 if married filing separately per year of qualified reforestation expenditures for each qualified timber property, an increase from the existing limit of $10,000, or $5,000 if married filing separately. This additional deduction does not apply to publicly traded corporations, real estate investment trusts (REIT'S), and taxpayers that own or lease more than 500 acres of qualified timber property in total, including timberland inside and outside these zones. There are three different zones for purposes of determining the time period over which this provision applies.

Gulf Opportunity Zone - Reforestation expenditures for qualified timber properties within this zone qualify for the additional deduction if made on or after August 28, 2005 and before January 1, 2008.

In Rita Gulf Opportunity Zone but outside the Gulf Opportunity Zone – Expenditures on or after September 23, 2005 and before January 1, 2008.

In Wilma Gulf Opportunity Zone but outside the Gulf Opportunity Zone and outside the Rita Gulf Opportunity Zone – After October 23, 2005 and before January 1, 2008.

These three zones are defined in Code Secs. 1400M(1), (3), and (5), as added by the Gulf Zone Act. All the provisions of Code Sec. 194 apply to the additional $10,000 deduction. And, of course both the $10,000 and $20,000 are maximums, limited by the actual amount of qualified expenditures if less than these limits. In all cases, amounts over the maximum can be amortized over 84 months. (Act Sec. 101(a), adding Code Sec. 1400N(i), and Act Sec. 101(c)(1) regarding effective dates)

Net Operating Loss (NOL) Carry-back Increased from 2 to 5 years

This discussion is primarily a heads up for you to make certain your tax preparer takes advantage of this provision if you have an NOL and have qualified timberland in one of the three Gulf Opportunity Zones (GOZ's), described in the discussion of the reforestation provisions. The Gulf Opportunity Zone Act of 2005 provides that taxpayers with NOL's resulting from losses to timber property in a GOZ can carry the NOL back 5 years instead of the normal 2 years. As before, if the NOL is not offset by going back five years it is carried forward for up to 20 years. This provision simply provides to owners of qualified timber property, the treatment applicable to farming operations under Code Sec. 172. As with the increase in the reforestation deduction, the extended carryback provision does not apply to corporations with publicly traded stock, REITS, and owners or lessees of more than 500 acres of timberland. (posted 1/24/06)

New IRS Publication 4492 explains the tax relief available to taxpayers affected by hurricanes Katrina, Rita, and Wilma. It's available on the IRS website.

CCH Tax Briefing (Special Report) - Gulf Opportunity Zone Act of 2005: Broad Tax Relief and Other Changes...|continue|