The Gulf Opportunity Zone Act of 2005 ( H.R. 4440 ) provides tax relief to businesses and individuals affected by Hurricanes Katrina, Rita, and Wilma. The House passed the act on December 7, 2005, by a vote of 415 to 4. The Senate passed an amended version by unanimous consent on December 16, 2005, and the House agreed to the Senate Amendment later that day. President Bush signed the bill into law, P.L. 109-135 , on December 22, 2005. The act's provisions distinguish between the "Hurricane Katrina disaster area," which is the presidentially-declared disaster area, and the "Gulf Opportunity Zone" (GO Zone), which is the portion of the Hurricane Katrina disaster area determined by President Bush to warrant individual or individual and public assistance under the Stafford Act. The same distinction is made between the "Hurricane Rita disaster area" and the "Rita GO Zone," and the "Hurricane Wilma disaster area" and the "Wilma GO Zone." The act allows Alabama, Louisiana, and Mississippi to issue tax-exempt GO Zone bonds between the date of the section's enactment and January 1, 2011. The bonds must be issued either to (1) use at least 95% of the proceeds for the cost of qualified GO Zone residential rental projects or the acquisition, construction, reconstruction and renovation of GO Zone nonresidential real property or public utility property or (2) finance below-market rate mortgages for low and moderate-income homebuyers under IRC § 142, with modifications. The maximum amount of bonds that each state may issue is $2,500 multiplied by the portion of the state's population in the GO Zone as determined prior to August 28, 2005. None of the bond issue's proceeds may be used to finance private and commercial golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and other gambling facilities and stores with the principal business of selling alcoholic beverages for consumption off premises. The act allows one additional advance refunding of qualifying bonds that were issued by those states and were outstanding on August 28, 2005. Additionally, while bonds issued to advance refund private activity bonds are generally not tax-exempt, the act allows one advance refunding for bonds used to finance airports, docks, and wharves. The refundings must occur between the date of the act's enactment and January 1, 2011, and each state is capped in the amount of bonds it may refund. The refunding provisions do not apply if any of the bond issue's proceeds are used to provide property that does not qualify for GO Zone bond financing, as discussed above. The act creates a special rule for applying IRC § 142(d), which allows residential rental projects for low-income tenants to qualify for tax-exempt bond financing. The act allows project operators who rent to individuals displaced by Hurricane Katrina to rely on those individuals' representations that their income is under the income limits so long as the tenancy begins within six months of the displacement. The low-income housing tax credit in IRC § 42 allows owners of qualified residential rental property to claim a credit for ten years that is a percentage of the costs of constructing, rehabilitating, or acquiring the building that is attributable to low-income units. Owners may claim a credit based on 130% of the project's costs if the housing is in a low-income or difficult development area. Owners must be allocated the credit by a state. Each state is limited in the amount of credits it may allocate to the greater of $2,000,000 or $1.75 times the state's population (both are adjusted for inflation and are currently $2,125,000 and $1.85), with adjustments. For 2006, 2007, and 2008, the act increases the credits available to Alabama, Louisiana, and Mississippi for use in the GO Zone by up to $18.00 multiplied by the portion of the state's population in the GO Zone prior to August 28, 2005. It also increases the credits available to Florida and Texas in 2006 by $3,500,000 for each state. For 2006, 2007, and 2008, the act treats the GO Zone, Rita GO Zone and Wilma Go Zone as difficult development areas and uses an alternate test for determining whether certain GO Zone projects qualify as low-income housing. The act increases the depreciation deduction otherwise allowed under IRC § 167 for qualified GO Zone property. The increase equals 50% of the taxpayer's adjusted basis in the property and is claimed the year the property is placed in service. Among other requirements, the property's original use in the GO Zone must commence with the taxpayer after August 27, 2005, and the property must be placed in service prior to January 1, 2008 (January 1, 2009, for nonresidential real and residential rental property). Qualified property does not include (1) property used in connection with private and commercial golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and other gambling facilities, and stores whose principal business is selling alcoholic beverages for consumption off premises or (2) gambling and animal property, which is the equipment, furniture, software and other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such activity, and any portion of at least 100 square feet of real property dedicated to those activities. Under IRC § 172, net operating losses (NOL) may generally be carried back for two years. The act allows GO Zone NOL to be carried back for five years. The GO Zone loss is the lesser of (a) the year's NOL with adjustment or (b) the deductions used in computing the year's NOL for GO Zone casualty losses, employment-related moving expenses due to Hurricane Katrina, temporarily housing employees, depreciation of GO Zone property, and hurricane-related repair expenses. Property that is disqualified under the depreciation provision discussed above does not qualify as GO Zone property or its loss as a GO Zone casualty loss. In general, capital expenditures must be added to the property's basis rather than being expensed (i.e., deducted in the current year). IRC § 179 provides an exception so that a business may expense the costs of certain property in the year it is placed in service. The total cost of the property that the business elects to treat as section 179 property cannot exceed $100,000. Additionally, for every dollar that the total cost of all property that the business places in service in the year exceeds $400,000, the maximum deduction is decreased by one dollar. Both limitations are adjusted for inflation, and are $105,000 and $450,000 in 2005. IRC § 198 contains another exception to the rule against expensing capital expenditures. It allows taxpayers to expense environmental remediation costs from the abatement or control of hazardous substances at a qualified contaminated site. It does not apply to costs paid after December 31, 2005. The act increases the $100,000 limitation in IRC § 179 by up to $100,000 and the $400,000 limitation by up to $600,000 for qualified GO Zone property. Qualified property does not include the property that is disqualified from the depreciation and NOL provisions discussed above. The act amends IRC § 198 for sites in the GO Zone by extending the current deadline to December 31, 2007, and treating petroleum products as a hazardous substance. It also allows taxpayers to expense 50% of qualified clean-up costs paid or incurred between August 27, 2005, and January 1, 2008, for the removal of debris or the demolition of structures on business real property in the GO Zone. Under IRC § 47, taxpayers may claim a credit equal to 10% of the qualifying expenditures to rehabilitate a qualified building or 20% of such expenditures for a certified historic structure. The act increases these amounts to 13% and 26% for building and structures in the GO Zone for expenditures between August 27, 2005, and January 1, 2009. The act creates two special rules for timber producers with less than 501 acres of timber property. Under IRC § 194, taxpayers may expense up to $10,000 of qualifying reforestation expenditures. The act increases that limit by up to $10,000 for expenditures made for qualified timber property in the GO Zone, Rita GO Zone, or Wilma GO Zone. Under IRC § 172, the general rule is that taxpayers may carry net operating losses back for two years. The act increases this to five years for certain losses attributable to timber property in any of the three zones. Under IRC § 172, certain net operating losses, called specified liability losses, may be carried back for 10 years. The act treats GO Zone public utility casualty losses as such a loss. Under IRC § 165(i), certain disaster losses may be deducted in the year prior to the disaster. The act allows GO Zone public utility disaster losses to be deducted in the fifth taxable year preceding the disaster. The act allows holders of gulf tax credit bonds to claim a credit based on the credit rate on the date the bonds were sold and their outstanding face amount. The bonds may be issued by Alabama, Louisiana, and Mississippi to pay the principal, interest, or premiums on qualified governmental bonds or to make loans to political subdivisions to make such payments. Qualified bonds do not include those used to finance private and commercial golf courses, country clubs, massage parlors, hot tub and suntan facilities, racetracks and other gambling facilities, and stores with the principal business of selling alcoholic beverages for consumption off premises. The gulf tax credit bonds must be issued between December 31, 2005, and January 1, 2007, and may not have a maturity date beyond two years. Each state is capped in the amount of bonds it may issue. The new markets tax credit in IRC § 45D is capped at $2 billion for 2005 and $3.5 billion for 2006 and 2007.