Tax benefits for Gulf Opportunity Zone

(a)

In general

Subchapter Y of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

1400M.

Tax benefits for Gulf Opportunity Zone

(a)

Zero percent capital gains rate

(1)

Exclusion

Gross income shall not include qualified capital gain from the sale or exchange of any Gulf Opportunity Zone asset held for more than 5 years. (2)

Gulf Opportunity Zone

For purposes of this subsection, the term Gulf Opportunity Zone asset means— (A)any Gulf Opportunity Zone business stock, (B)any Gulf Opportunity Zone partnership interest, and (C)any Gulf Opportunity Zone business property. (3)

Gulf Opportunity Zone business stock

For purposes of this subsection— (A)

In general

The term Gulf Opportunity Zone business stock means any stock in a domestic corporation which is originally issued after August 28, 2005, if— (i)such stock is acquired by the taxpayer, before January 1, 2007, at its original issue (directly or through an underwriter) solely in exchange for cash, (ii)as of the time such stock was issued, such corporation was a Gulf Opportunity Zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a Gulf Opportunity Zone business), and (iii)during substantially all of the taxpayer’s holding period for such stock, such corporation qualified as a Gulf Opportunity Zone business. (B)

Redemptions

A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. (4)

Gulf Opportunity Zone partnership interest

For purposes of this subsection, the term Gulf Opportunity Zone partnership interest means any capital or profits interest in a domestic partnership which is originally issued after August 28, 2005, if— (A)such interest is acquired by the taxpayer, before January 1, 2007, from the partnership solely in exchange for cash, (B)as of the time such interest was acquired, such partnership was a Gulf Opportunity Zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a Gulf Opportunity Zone business), and (C)during substantially all of the taxpayer’s holding period for such interest, such partnership qualified as a Gulf Opportunity Zone business.

A rule similar to the rule of subparagraph (B)(ii) shall apply for purposes of this paragraph.

(5)

Gulf Opportunity Zone business property

For purposes of this subsection— (A)

In general

The term Gulf Opportunity Zone business property means tangible property if— (i)such property was acquired by the taxpayer by purchase (as defined in section 179(d)(2)) after August 28, 2005, and before January 1, 2007, (ii)the original use of such property in the Gulf Opportunity Zone commences with the taxpayer, and (iii)during substantially all of the taxpayer’s holding period for such property, substantially all of the use of such property was in a Gulf Opportunity Zone business of the taxpayer. (B)

Special rule for buildings which are substantially improved

(i)

In general

The requirements of clauses (i) and (ii) of subparagraph (A) shall be treated as met with respect to— (I)property which is substantially improved by the taxpayer before January 1, 2007, and (II)any land on which such property is located. (ii)

Substantial improvement

For purposes of clause (i), property shall be treated as substantially improved by the taxpayer only if, during any 24-month period beginning after August 28, 2005, additions to basis with respect to such property in the hands of the taxpayer exceed the greater of— (I)an amount equal to the adjusted basis of such property at the beginning of such 24-month period in the hands of the taxpayer, or (II)$5,000. (6)

Gulf Opportunity Zone business

For purposes of this subsection, the term Gulf Opportunity Zone business means any corporation, partnership, or business which would be an enterprise zone business (as defined in section 1397C) if such section were applied by substituting Gulf Opportunity Zone for empowerment zone each place it appears. (7)

Special rules related to Gulf Opportunity Zone assets

For purposes of this subsection— (A)

Treatment of subsequent purchasers, etc

For purposes of this subsection, the term Gulf Opportunity Zone asset includes any property which would be a Gulf Opportunity Zone asset but for paragraph (3)(A)(i), (4)(A), or (5)(A)(i) or (ii) in the hands of the taxpayer if such property was a Gulf Opportunity Zone asset in the hands of a prior holder. (B)

5-year safe harbor

If any property ceases to be a Gulf Opportunity Zone asset by reason of paragraph (3)(A)(iii), (4)(C), or (5)(A)(iii) after the 5-year period beginning on the date the taxpayer acquired such property, such property shall continue to be treated as meeting the requirements of such paragraph; except that the amount of gain to which paragraph (1) applies on any sale or exchange of such property shall not exceed the amount which would be qualified capital gain had such property been sold on the date of such cessation. (8)

Qualified capital gain

For purposes of this subsection— (A)

In general

Except as otherwise provided in this paragraph, the term qualified capital gain means any gain recognized on the sale or exchange of— (i)a capital asset, or (ii)property used in the trade or business (as defined in section 1231(b). (B)

Gain before Hurricane or after 2011 not qualified

The term qualified capital gain shall not include any gain attributable to periods before August 29, 2005, or after December 31, 2011. (C)

Certain ordinary income gain not qualified

The term qualified capital gain shall not include any gain which would be treated as ordinary income under section 1245 or under section 1250 if section 1250 applied to all depreciation rather than the additional depreciation. (D)

Intangibles and land not integral part of Gulf Opportunity Zone business

The term qualified capital gain shall not include any gain which is attributable to real property, or an intangible asset, which is not an integral part of a Gulf Opportunity Zone business. (E)

Related party transactions

The term qualified capital gain shall not include any gain attributable, directly or indirectly, in whole or in part, to a transaction with a related person. For purposes of this subparagraph, persons are related to each other if such persons are described in section 267(b) or 707(b)(1). (9)

Certain other rules to apply

Rules similar to the rules of subsections (g), (h), (i)(2), and (j) of section 1202 shall apply for purposes of this subsection. (10)

Sales and exchanges of interests in partnerships and S corporations which are Gulf Opportunity Zone businesses

In the case of the sale or exchange of an interest in a partnership, or of stock in an S corporation, which was a Gulf Opportunity Zone business during substantially all of the period the taxpayer held such interest or stock, the amount of qualified capital gain shall be determined without regard to— (A)any gain which is attributable to real property, or an intangible asset, which is not an integral part of a Gulf Opportunity Zone business, and (B)any gain attributable to periods before August 29, 2005, or after December 31, 2011. (b)

Increase and expansion of expensing of business property

(1)

Waiver of dollar limitations

The limitations of paragraphs (1) and (2) of section 179(b) shall not apply to Gulf Opportunity Zone property and shall be applied to other property without regard to Gulf Opportunity Zone property. (2)

Inclusion of real property, etc

Gulf Opportunity Zone property shall be treated as section 179 property (as defined in section 179(d)) without regard to the limitation of subparagraph (B) of section 179(d)(1). (3)

Gulf Opportunity Zone property

The term Gulf Opportunity Zone property means any property— (A)placed in service by the taxpayer during the period beginning on August 28, 2005, and ending on December 31, 2007, in the Gulf Opportunity Zone, and (B)substantially all of the use of which is in such Zone and is in the active conduct of a trade or business by the taxpayer in such Zone. (4)

Recapture

Rules similar to the rules under section 170(d)(10) shall apply with respect to any Gulf Opportunity Zone property which ceases to be used in the Gulf Opportunity Zone. (c)

Application of New Markets Tax Credit

(1)

In general

The Gulf Opportunity Zone shall be treated as a low-income community for purposes of section 45D. (2)

Coordination with national limitation

(A)

In general

Any credit allowed under section 45D by reason of paragraph (1) shall not be taken into account under section 45D(f). (B)

Separate limitation

There is a limitation on the aggregate credits allowed under section 45D by reason of paragraph (1). Such limitation is— (i)$32,200,000 for 2005, (ii)$56,300,000 for 2006, and (iii)$56,300,000 for 2007. (C)

Allocation of limitation

The limitation under subparagraph (B) shall be allocated by the Secretary among those qualified community development entities (as defined in section 45D(c)) with respect to the Gulf Opportunity Zone which are selected by the Secretary. In making allocations under the preceding sentence, the Secretary shall give priority to entities described in subparagraph (A) or (B) of section 45D(f)(2). (D)

Carryover of unused limitation

The rules of paragraph (3) of section 45D(f) shall apply for purposes of this paragraph. (d)

Gulf Opportunity Zone

For purposes of this section, the term Gulf Opportunity Zone means an area determined by the President to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricane Katrina.

(b)

Conforming amendments

(1)The heading for subchapter Y of chapter 1 of such Code is amended to read as follows:

Temporary regional benefits

(2)The table of sections for such subchapter is amended by adding at the end the following new item:

Sec. 1400M. Tax benefits for Gulf Opportunity Zone