The Job Creation and Worker Assistance Act of 2002 contains various tax incentives designed to stimulate the economy and aid recovery from the impact of the September 11, 2001, terrorist attacks, including these provisions for the area of lower Manhattan designated as the New York Liberty Zone.

Expansion of the Work Opportunity Tax Credit (WOTC)
A new targeted group has been added to the original eight targeted groups eligible for the WOTC. This new targeted group includes individuals who perform substantially all their services in the New York Liberty Zone (NYLZ), as well as individuals who perform substantially all their services in New York City for a business that relocated from the NYLZ to elsewhere within New York City due to the physical destruction or damage of their workplaces within the NYLZ by the September 11, 2001, terrorist attack. Unlike other targeted categories, members of the NYLZ group do not need to be certified. Small businesses may claim this credit for wages paid or incurred for both new hires and existing employees for work performed after December 31, 2001, and before January 1, 2004.

Special Depreciation Allowance for Certain Property
The law allows an additional first-year depreciation deduction equal to 30 percent of the adjusted basis of qualified NYLZ property. This additional deduction is allowed for both regular tax and alternative minimum tax purposes. In general, this provision applies to real property not eligible for additional first-year depreciation under the "general" additional first year depreciation rules.

Increase in Expensing Treatment for Business Property Used in the NYLZ
The law increased the amount a taxpayer may deduct under Section 179 (Election to Expense Certain Depreciable Business Assets) for qualifying property used in the NYLZ. Qualifying property in the NYLZ is property that is used to conduct a trade or business, and its original use began after September 11, 2001. The maximum dollar amount that may be deducted under Section 179 is increased by the lesser of (1) $35,000 or (2) the cost of qualifying property placed in service after September 10, 2001, and before January 1, 2007.

Treatment of Qualified Leasehold Improvement Property
For purposes of the depreciation rules under Section 168, 5-year property includes qualified NYLZ leasehold improvement property placed in service after September 10, 2001, and before January 1, 2007. To qualify, property must not have been subject to a binding contract as of September 10, 2001.

Extension of Replacement Period
This Act extends the Section 1033 two-year period for a tax-free replacement of involuntarily converted property to five years for NYLZ property converted as a result of the September 11 terrorist attack.

Tax-Exempt Private Activity  Bonds for Rebuilding in the NYLZ
During calendar years 2002, 2003 and 2004, up to $8 billion of tax-exempt private activity bonds may be issued to finance the construction and rehabilitation of nonresidential and residential real property in the NYLZ. These bonds are limited to projects approved by the Mayor of New York City or the Governor of New York State, each of whom may designate up to $4 billion of the bonds authorized under the Act.

Additional Advance Refunding for Certain Previously Refunded Bonds
Certain bonds for facilities in New York City may be advance refunded one additional time. This applies only to bonds for which all present-law advance refunding authority was exhausted prior to September 12, 2001, and with respect to which the advance refunding bonds were outstanding on September 11, 2001. Eligible advance bonds must be designated as such by the Mayor of New York City or the Governor of New York State, each of whom may designate up to $4.5 billion of bonds. To be eligible for the additional advance refunding, at least 90% of the refunded bonds must have been used to finance facilities located in New York City.

For more information on Liberty Zone provisions, see:

• New York Liberty Zone Bonds
• Notice 2002-42 (PDF 23K) - Q&A Guidance on the Business Credit, Liberty Bonds and Liberty Advance Refunding Bonds.
• Notice 2003-40 (PDF 66K) - Additional Guidance on New York Liberty Bonds

For more information on tax law changes, see:

• Publication 3991 (PDF 150K) - Highlights of the Job Creation and Worker Assistance Act of 2002
• News Release IR-2002-66 (PDF 131K) - IRS Gives Taxpayers until Oct. 31 to Make Choice on  New 5-Year Carryback for Net Operating Losses
• News Release IR-2002-65 (PDF 128K) - Teachers Should Save Receipts for New Tax Deduction
• Revenue Procedure 2002-33 (PDF 83K) - Handling Additional First Year Depreciation Not Claimed on Returns Filed before June 1, 2002
• Revenue Procedure 2003-50 (PDF 78K) - Extension of Time for Claiming Additional First Year Depreciation or Increased Section 179 Expensing, modifying Rev. Proc. 2002-33