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previous page Previous Page: Publication 4492 - Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma - Additional Tax Relief for Individuals
next page Next Page: Publication 4492 - Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma - Request for Copy or Transcript of Tax Return
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taxmap/pubs/p4492-008.htm#TXMP062c46e6

Additional Tax Relief for Businesses


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Special Depreciation Allowance


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You can take a special depreciation allowance for qualified Gulf Opportunity (GO) Zone property (as defined below) you place in service after August 27, 2005. The allowance is an additional deduction of 50% of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction). The special allowance applies only for the first year the property is placed in service.
The allowance is deductible for both the regular tax and the alternative minimum tax (AMT). There is no AMT adjustment required for any depreciation figured on the remaining basis of the property.
You can elect not to deduct the special GO Zone depreciation allowance for qualified property. If you make this election for any property, it applies to all property in the same class placed in service during the year.
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Qualified GO Zone property.


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Property that qualifies for the special GO Zone depreciation allowance includes the following.
For more information on this property, see Publication 946.
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Other tests to be met.


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To be qualified GO Zone property, the property must also meet all of the following tests.
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Excepted property.


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Qualified GO Zone property does not include any of the following.
Gambling or animal racing property is:
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Recapture of special allowance.


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If, in any year after the year you claim the special allowance, the property ceases to be qualified GO Zone property, you may have to recapture as ordinary income any excess benefit you received from claiming the special allowance.
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Increased Section 179 Deduction


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An increased section 179 deduction is allowable for qualified section 179 Gulf Opportunity (GO) Zone property (as defined later) placed in service in the GO Zone.
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Increased dollar limit.


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The limit on the section 179 deduction ($105,000 for 2005, $108,000 for 2006) is increased by the smaller of:
The amount for which you can make the election is reduced if the cost of all section 179 property you placed in service during the year exceeds $420,000 for 2005 ($430,000 for 2006) increased by the smaller of:
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Qualified section 179 GO Zone property.


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Qualified section 179 GO Zone property is section 179 property that is qualified GO Zone property (explained earlier under Special Depreciation Allowance). Section 179 property does not include nonresidential real property or residential rental property. For more information, including the requirements that must be met for property to qualify for the section 179 deduction, see chapter 2 of Publication 946.
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Work Opportunity Credit


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For the work opportunity credit, the definition of "targeted group employee" has been expanded to include a Hurricane Katrina employee.
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Hurricane Katrina employee.


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A Hurricane Katrina employee is:
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Qualified wages.
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Generally, qualified wages do not include wages you paid to a targeted group employee who worked for you previously. However, wages will qualify if:
For more information, see Form 5884.
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Certification requirements.
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An employee must provide to the employer reasonable evidence that he or she is a Hurricane Katrina employee. An employer may accept a completed Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, as such evidence. The certification requirements described in Form 8850 do not apply to a Hurricane Katrina employee. Do not send any Forms 8850 that have only box 1 checked to the state employment security agency. Instead, the employer should keep these Forms 8850 with the employer's other records. For more information, see Form 8850 and its instructions.
taxmap/pubs/p4492-008.htm#TXMP74d4b248

Employee Retention Credit


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An eligible employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone, the Rita GO Zone, or the Wilma GO Zone can claim the employee retention credit. The credit is 40% of qualified wages for each eligible employee (up to a maximum of $6,000 in qualified wages per employee). Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). Use Form 5884-A to claim the credit. See the following rules and definitions for each hurricane.
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Employers affected by Hurricane Katrina.


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The following definitions apply to employers affected by Hurricane Katrina.
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Eligible employer.
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For this purpose, an eligible employer is any employer who conducted an active trade or business on August 28, 2005, in the GO Zone and whose trade or business was inoperable on any day after August 28, 2005, and before January 1, 2006, because of damage caused by Hurricane Katrina.
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Eligible employee.
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For this purpose, an eligible employee is an employee whose principal place of employment on August 28, 2005, with such eligible employer was in the GO Zone. An employee is not an eligible employee for purposes of Hurricane Katrina if the employee is treated as an eligible employee for the work opportunity credit.
taxmap/pubs/p4492-008.htm#TXMP0dfefe8f

Employers affected by Hurricane Rita.


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The following definitions apply to employers affected by Hurricane Rita.
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Eligible employer.
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For this purpose, an eligible employer is any employer who conducted an active trade or business on September 23, 2005, in the Rita GO Zone and whose trade or business was inoperable on any day after September 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Rita.
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Eligible employee.
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For this purpose, an eligible employee is an employee whose principal place of employment on September 23, 2005, with such eligible employer was in the Rita GO Zone. An employee is not an eligible employee for purposes of Hurricane Rita if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina employee retention credit.
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Employers affected by Hurricane Wilma.


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The following definitions apply to employers affected by Hurricane Wilma.
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Eligible employer.
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For this purpose, an eligible employer is any employer who conducted an active trade or business on October 23, 2005, in the Wilma GO Zone and whose trade or business was inoperable on any day after October 23, 2005, and before January 1, 2006, because of damage caused by Hurricane Wilma.
taxmap/pubs/p4492-008.htm#TXMP5f7bc45b

Eligible employee.
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For this purpose, an eligible employee is an employee whose principal place of employment on October 23, 2005, with such eligible employer was in the Wilma GO Zone. An employee is not an eligible employee for purposes of Hurricane Wilma if the employee is treated as an eligible employee for the work opportunity credit or the Hurricane Katrina or Rita employee retention credit.
taxmap/pubs/p4492-008.htm#TXMP66151948

Qualified wages.


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Qualified wages are wages you paid or incurred before January 1, 2006, (up to $6,000 per employee) for an eligible employee beginning on the date your trade or business first became inoperable at the employee's principal place of employment immediately before the applicable hurricane, and ending on the date your trade or business resumed significant operations at that place. In addition, the wages must have been paid or incurred after the following date.
This includes wages paid even if the employee performed no services, performed services at a place of employment other than the principal place of employment, or performed services at the principal place of employment before significant operations resumed.
Wages qualifying for the credit generally have the same meaning as wages subject to the Federal Unemployment Tax Act (FUTA). Qualified wages also include amounts you paid for medical or hospitalization expenses in connection with sickness or accident disability. Qualified wages for any employee must be reduced by the amount of any work supplementation payment you received under the Social Security Act.
For agricultural employees, if the work performed by any employee during more than half of any pay period qualified under FUTA as agricultural labor, that employee's wages subject to social security and Medicare taxes are qualified wages. For a special rule that applies to railroad employees, see section 51(h)(1)(B).
Qualified wages do not include the following.
For more information, see Form 5884-A.
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Hurricane Katrina Housing Credit


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Hurricane Katrina Housing Credit

An employer who conducted an active trade or business in the Gulf Opportunity (GO) Zone can claim the Hurricane Katrina housing credit. The credit is equal to 30% of the value (up to $600 per month per employee) of in-kind lodging furnished to a qualified employee (and the employee's spouse or dependents) from January 1, 2006, through July 1, 2006. The value of the lodging is excluded from the income of the qualified employee but is treated as wages for purposes of taxes imposed under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA). Generally, you must reduce your deduction for salaries and wages by the amount of this credit (before the tax liability limit). The employer must use Form 5884-A to claim the credit.
A qualified employee is an individual who had a main home in the GO Zone on August 28, 2005, and who performs substantially all employment services in the GO Zone for the employer furnishing the lodging. The employee cannot be your dependent or a related individual. See section 51(i)(1).
For more information, see Form 5884-A.
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Reforestation Costs


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You may be able to elect to deduct a limited amount of reforestation costs for each qualified timber property. The deduction for any tax year generally is limited to $10,000 ($5,000 if married filing separately, $0 for a trust). However, this limit is increased if you paid or incurred reforestation costs after the applicable date below and any portion of the qualified timber property is located in one of the following areas.
  1. August 27, 2005, if any portion of the property is located in the GO Zone.
  2. September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone).
  3. October 22, 2005, if any portion of the property is located in the Wilma GO Zone.
The limit for each qualified timber property is increased by the smaller of:
The increase in the limit applies only to costs paid or incurred before 2008.
However, these rules do not apply to any timber producer who:
For more information about the election to deduct reforestation costs, see chapter 8 in Publication 535, Business Expenses.
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Demolition and Clean-up Costs


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You can elect to deduct 50% of any qualified GO Zone clean-up costs for the tax year in which the costs are paid or incurred, instead of capitalizing them. Qualified GO Zone clean-up costs are any amounts paid or incurred after August 27, 2005, and before January 1, 2008, for the removal of debris from, or the demolition of structures on, real property located in the GO Zone that is:
taxmap/pubs/p4492-008.htm#TXMP50c41a6c

Increase in Rehabilitation Tax Credit


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The rehabilitation credit is increased for qualified rehabilitation expenditures paid or incurred after August 27, 2005, and before January 1, 2009, on buildings located in the GO Zone as follows.
For more information, see Form 3468, Investment Credit.
previous pagePrevious Page: Publication 4492 - Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma - Additional Tax Relief for Individuals
next pageNext Page: Publication 4492 - Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma - Request for Copy or Transcript of Tax Return
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication