Don't Mess With Taxes

Take Alabama football fanaticism, mix in some generous federal tax breaks created to spur post-Katrina rebuilding and you have a recipe for big bucks for some real estate investors.

According to the Associated Press, several condominium projects are being built near the University of Alabama football stadium. Featuring granite counter tops, king-size bathtubs, crimson couches and Bear Bryant wall art, the Tuscaloosa units are priced at up to $1 million each.

But in addition to wealthy Crimson Tide alumni, buyers include investors who plan to rent out the condos. And that entitles them to some of the tax benefits created under the Gulf Opportunity Zone Act of 2005.

Usually referred to as the GO Zone Act, the law contains various tax breaks that Capitol Hill hoped would encourage rebuilding in Alabama, Louisiana and Mississippi after Katrina ravaged the area.

Although Tuscaloosa is 200 miles from the Gulf Coast and didn't suffer major damage in the storm, it was included in the zone. Defenders of the designation say the area needed the tax relief because it helped house hundreds of evacuees for weeks after the hurricane.

One of the breaks allows GO Zone real estate investors to take accelerated depreciation on their properties. This tax provision is for investors only, not purchasers of private residences.

While the condo deals are perfectly legal and do not affect tax breaks afforded Katrina victims, the AP reports that this application of the tax law infuriates some community leaders, especially in light of the bureaucracy that's stalled rebuilding in some of the hardest-hit coastal areas.

"It is a joke," Tuscaloosa developer Stan Pate, who also used GO Zone tax breaks on projects that include a new hotel and a restaurant, told the AP. "It was supposed to be about getting people ... to put housing in New Orleans, La., or Biloxi, Miss. It was not about condos in Tuscaloosa."

Tax-break time limit extended: The IRS has decided to give victims of 2005's major hurricanes an extra year to sell their vacant land.

The decision is not related to the GO Zone revelations. It's just a coincidence that the AP report came out shortly after the IRS announcement.

Generally, tax law gives property owners just two years within which to sell the vacant land and still be able to take advantage of the exclusion on gain from the sale of a principal residence.

But with the two-year anniversary of Hurricanes Katrina, Rita and Wilma imminent and many folks still not able to dispose of their property, the agency decided to provide the additional exclusion time.

Under the new guidelines, victims of the three major hurricanes of 2005 now won't have to rush to sell the vacant land that they had owned and used as part of their principal residence. They now have three years -- until 2008 -- to sell the vacant lots upon which their storm-destroyed residences once sat.

The IRS Web site has specific information on how this provision applies to disaster victims. You also can find more information on other tax relief available to victims of Hurricanes Katrina, Rita and Wilma.