tax deduction on bond

[PatandBob]

Just back from our lifestyle preview. We bought a lot in St. James (still feeling a bit nervous about it :$: )

The village realtor told us the interest on the bond payment was tax deductible. This didn't seem right to me ... is it indeed tax deductible?

Thanks for the information!

[villages07]

no it's not.... your realtor misinformed you.

However, the payment on the bond (principle plus interest) is collected via your annual property tax bill payment to Sumter County. Many who are not tax-wise will assume that whatever the check amount is that they write to Sumter County Tax Assessor is what they will deduct on their IRS Schedule B (including CDD maintenance, fire safety, CDD bond). I'm sure many have overstated their property tax deduction on their federal taxes.

ps....congrats on buying a lot in St James - best decision you'll ever make. Nerves are to be expected but the adventure awaits.

[eremite06]

Only Ad Valorem taxes paid are tax deductible.

[Bill-n-Brillo]

Here's a follow-on question then: Granted, the interest payment on the bond isn't considered to be part of your property taxes (it just happens to get billed/collected with them) and thus isn't deductible as a property tax. But can the bond interest be considered deductible as mortgage interest? I guess "yes" but look to input from others.

Here's my mentality on it: If you purchase a home (elsewhere) in a development where the cost of the development's infrastructure is INCLUDED in the sales price of each home, your home mortgage interest is deductible..........and it includes the amount associated with the infrastructure cost whereas in TV, the infrastructure cost is broken out separately via the bond.

Bill

[kentucky blue]

Just back from our lifestyle preview. We bought a lot in St. James (still feeling a bit nervous about it :$: )

The village realtor told us the interest on the bond payment was tax deductible. This didn't seem right to me ... is it indeed tax deductible?

Thanks for the information!

No, the 7.25% interest payments on your bond are not tax deductible. I am going to pay my bond off with my 3% home equity loan.Besides saving 4.25% on the loan, it's tax deductible.Just wish the real estate sales personnel would give buyers full disclosure on the bond issue right up front, it's not a deal breaker when you have all the facts.Congratulations on your purchase.

[PatandBob]

Just wish the real estate sales personnel would give buyers full disclosure on the bond issue right up front, it's not a deal breaker when you have all the facts.Congratulations on your purchase.

Have to say I am very disappointed that the village realtor was misleading about these issue and a couple others. Wasn't necessary. We still would have bought - just gives me an uneasy feeling. If the truth wasn't told on these issues, what else am I going to be surprised about.

[herbaru]

Have to say I am very disappointed that the village realtor mislead (want to say lied) about this issue and a couple others. Wasn't necessary. We still would have bought - just gives me an uneasy feeling. If the truth wasn't told on these issues, what else am I going to be surprised about.

I surely understand your disappointment! It is unacceptable that the TV realtor would give you incorrect information. This persons manager needs to be told, maybe it's a training issue?

[Taj44]

Have to say I am very disappointed that the village realtor mislead (want to say lied) about this issue and a couple others. Wasn't necessary. We still would have bought - just gives me an uneasy feeling. If the truth wasn't told on these issues, what else am I going to be surprised about.

Just for future reference, The Villages does not have realtors working for them, they only have salespeople. In other words, the salespeople are not licensed or bound to a code of ethics that a licensed real estate broker would be.

[philnpat]

We asked our village salesperson, Deb Park, if the bond was deductible. She made it very clear that it was not. Better to have that information up front than to be disappointed later.

[Challenger]

We asked our village salesperson, Deb Park, if the bond was deductible. She made it very clear that it was not. Better to have that information up front than to be disappointed later.

Our salesperson also was clear that the bond interest was not deductable. Somehow , though, this seems to defy logic since it is clearly part of the costs included in a home purchase in other areas of the state and country. Has ther been any effort to challenge the non deductablability with the IRS?

[Challenger]

The bond is the cost per lot of the infrastructure costs that in other places is included in the cost of building a home like nails and concrete and shingles for the roof. Bond is roads, side walks, curbs, etc. Don't blame the tax man, this one is on the developers. No offense, I just except that I paid 250K for our house and not 230K plus 20K bond. It is a way to make the house appear to be 20K less than it really cost you. Nothing sinister, just a Marketing tool.

You are making my point, these are legitimate housing costs. Has the deductability been tested. If so, when and what was the decision and or legal opinion? Does anyone posting here know? I think that the purpose of the bond was more a financing strategy than a marketing tool. Most housing affordability issues revolve around monthly out of pocket, and less on nominal purchase price.

[mak44070]

According to IRS Publication 530:


"Assessments for local benefits. You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property.
You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. An example is a charge to repair an existing sidewalk and any interest included in that charge.
If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it.
An assessment for a local benefit may be listed as an item in your real estate tax bill. If so, use the rules in this section to find how much of it, if any, you can deduct."

[ducati1974]

By the way the interest rate on the bonds vary depending upon when the house was built. For example we just checked ours today and it was 5.something% not the 7% shown earlier in this thread. Ours was built in 2005.

[StarbuckSammy]

I think that you should call back your Rep and ask again. These folks know their stuff...perhaps you misunderstood. They would not mislead you on this issue.

[BogeyBoy]

Just for future reference, The Villages does not have realtors working for them, they only have salespeople. In other words, the salespeople are not licensed or bound to a code of ethics that a licensed real estate broker would be.

I believe you are incorrect.

You are correct that they are not Realtors. But they are still required to have a license to sell real estate in the state of Florida. Under Florida law certain disclosures have to be made to the buyer. The sales person may have told them that there is a bond on the property but did not do a very good job of explaining exactly what that meant to the buyer. If the bond was not disclosed properly the buyer would be able to void the contract.

This would fall under the umbrella of misrepresentation - the act of a licensee who, either intentionally or unintentionally, fails to disclose a material fact or makes a false or misleading statement that is justifiably relied on by another.

If it were me I would be contacting the sales person's manager and at least point out the misinformation.

People who sell real estate in Florida are "Real Estate Sales Associates". With further education and experience they can become "Real Estate Brokers". None of these people are required to be a "Realtor", but in most cases if you aren't a Realtor you have no access to the MLS. TV obviously does not need the MLS for their sales team, so they are not Realtors. (Probably a lot of them have been at some point in their career.)

[Bill-n-Brillo]

According to IRS Publication 530:


"Assessments for local benefits. You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property.
You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. An example is a charge to repair an existing sidewalk and any interest included in that charge.
If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it.
An assessment for a local benefit may be listed as an item in your real estate tax bill. If so, use the rules in this section to find how much of it, if any, you can deduct."

Sooooooooooooo......if I interpret the above properly, the amount of the bond adds to the cost basis of the property and is considered to be a non-deductible amount on your taxes, which would make sense. The annual interest charges, however, sound as though they are deductible if you itemize your deductions. You'd have to figure out how much of your annual bond payment went to principal and what part went to interest - the county should be able to provide those numbers. I question, though, how much (if any) of the line item on your county tax statement for 'Special Assessment - Maint" would be considered deductible given that part of it is for maintenance and part of it is simply for operations.

Or am I missing something somewhere in the translation?

Bill

[rubicon]

I agree with the member who noted that by separating the bond from the house was misleading to prospective buyers that the house was less. By the way Lake County will not allow a bond and insists it be incorporated into the selling price of the house. Depending on a person's financial status I would suggest that they pay off the bond as soon as possible because you will be paying off the interest first then the principal. If I had known that Lake county forbid breakout of bonds I would have argued more because it was difficult to determine where the costs associated with the bond, lot and house began and ended. Most of us could have better assessed the relative value to asking price. Live and learn. This isjust my personal view.

[mak44070]

Sooooooooooooo......if I interpret the above properly, the amount of the bond adds to the cost basis of the property and is considered to be a non-deductible amount on your taxes, which would make sense. The annual interest charges, however, sound as though they are deductible if you itemize your deductions. You'd have to figure out how much of your annual bond payment went to principal and what part went to interest - the county should be able to provide those numbers. I question, though, how much (if any) of the line item on your county tax statement for 'Special Assessment - Maint" would be considered deductible given that part of it is for maintenance and part of it is simply for operations.

Or am I missing something somewhere in the translation?

Bill

The interest, as cited in Pub 530, would be interest charged on REPAIRS, not the ORIGINAL assessment. Sorry......
(I'm an Enrolled Agent, and have prepared individual tax returns for 23 years)

[Taj44]

I believe you are incorrect.

You are correct that they are not Realtors. But they are still required to have a license to sell real estate in the state of Florida. Under Florida law certain disclosures have to be made to the buyer. The sales person may have told them that there is a bond on the property but did not do a very good job of explaining exactly what that meant to the buyer. If the bond was not disclosed properly the buyer would be able to void the contract.

This would fall under the umbrella of misrepresentation - the act of a licensee who, either intentionally or unintentionally, fails to disclose a material fact or makes a false or misleading statement that is justifiably relied on by another.

If it were me I would be contacting the sales person's manager and at least point out the misinformation.

People who sell real estate in Florida are "Real Estate Sales Associates". With further education and experience they can become "Real Estate Brokers". None of these people are required to be a "Realtor", but in most cases if you aren't a Realtor you have no access to the MLS. TV obviously does not need the MLS for their sales team, so they are not Realtors. (Probably a lot of them have been at some point in their career.)

My point was not to get into the nuts and bolts of Florida real estate licensing law. But, as you say, if the Villages salespeople have licenses, they are most like Real Estate Sales associate licenses, not the more rigorous Real Estate Broker licenses which I previously referred to. And, more importantly, there is a conflict of interest, as they are not working for you, the buyer, they are working for The Villages.

[Bill-n-Brillo]

The interest, as cited in Pub 530, would be interest charged on REPAIRS, not the ORIGINAL assessment. Sorry......
(I'm an Enrolled Agent, and have prepared individual tax returns for 23 years)

Mary Ann - Thanks for the clarification. :cryin2: :)

Bill

[TCLaD]

Where and how would one find out what his bond interest payment is? Also, I find the workaround of using a 3% home equity loan very interesting as opposed to a 7% interest on the bond. Are not most bond payments figured on 12 years?

TLaD

[Challenger]

No, the 7.25% interest payments on your bond are not tax deductible. I am going to pay my bond off with my 3% home equity loan.Besides saving 4.25% on the loan, it's tax deductible.Just wish the real estate sales personnel would give buyers full disclosure on the bond issue right up front, it's not a deal breaker when you have all the facts.Congratulations on your purchase.

Where do you get a fixed rate equity loan at 3% which is other than a short term teaser??

[SteveBressi]

One work around to the question is if you have sufficient equity in your home, you may be able to get a home equity loan to pay off the bond. In the current market, you should be able to beat the rate and the interest on a home equity loan is fully deductibe.

A word of caution: Do this only if you plan to keep your home several years. When I purchased my home, several realitors advised me that normally, sellers do not recoup the full amount paid on the bond when it is paid off in the first year or two. I calculated my break even on a payoff to be about 7 years - given the interest rate.

[mrdarcy]

Don't hesitate to change your TV salesperson (realtor) if you're not pleased with the one you were assigned. I agree that you ought to talk to one of the sales managers. Tell them what you're unhappy about and ask to be re-assigned. I did and am so glad that I did. I felt the person they initially assigned me was not sufficiently knowledgable and was not motivated to find information that I needed to make a decision. There are many good TV salespeople. Work with one you like and feel you can trust. :ohdear:

[kentucky blue]

Where do you get a fixed rate equity loan at 3% which is other than a short term teaser??

I've been paying 3% on my home equity loan for over 2 years now, and with this no growth economy , it will be at that rate for a long looooooooooooooooong time.The bond interest rate of 7.25% is amortized over 30 years, so your bond payments are basically interest only with very little principle reduction. If and when the home equity rates dramatically increase, i'll just pay it off, but in this no growth economy,incredible high unemployment with home prices still on the decline, the Federal Reserve will not touch interest rates.The leader of the Fed, is a student of The Great Depression, and realizes he can't increase interest rates, if he wants to get the economy moving again. Living in"the bubble" only 6 months out of the year i still must deal with reality and the real world.
'

[Challenger]

my equity rate is nearly twice 3%. Haven't seen much less around here (MD)
Can you suugest a good bank with a 3% rate (not a 6 month teaser)

[graciegirl]

That post about the sales people for The Villages not being real estate agents made it sound like the sales people for the villages are out to get you and that they will hoodwink you in a heart beat..These new buyers, these REAL people are having a little touch of buyers remorse, (as many of us did) and they sound scared. We almost all thought...what have we done??

Than we found that what we had done is buy a place that will bring us much happiness. I would NOT trade the last three years of home ownership here for anything. They are some of the happiest in my entire life.

Having a bond here is pretty easy to absorb if you just add it to the cost of the house in your mind. Our Camellia cost 228K and the bond was 20K...so the house really cost 248K. The costs for the infrastructure are part of the cost of the home in our previous life. They are separated here.

How much would a person pay yearly on a bond that is about 20K...at the rate of 7.25? That is the figure that we are thinking about. And whether we can add that amount as a deduction to our taxes. Sounds like Mak knows and Mak told us.

You can pay the bond off all at once...(The opportunity to pay it all off comes once a year) which we do NOT intend to do because we expect to sell this lovely house and buy another here when we decide to move down for year round living.

[Kelsie52]

Where do you get a fixed rate equity loan at 3% which is other than a short term teaser??


Sun Trust ran a special just before Christmas

2.99 on the first draw for a home equity ---

You had to write a check on you home equity within 7 days of the approval

that amount of that draw would stay 2.99 for the life of the loan and additional draws go to Prime plus..

[kentucky blue]

my equity rate is nearly twice 3%. Haven't seen much less around here (MD)
Can you suugest a good bank with a 3% rate (not a 6 month teaser)

I've had my H.E.L. with my bank in Lexington for several years now.It's tied into the prime rate. The 3% has been my rate for over 2 years, and with Bernanke at the helm, i don't see it changing anytime soon. I do know, if i opened a new loan now, the best rate would be 4.5%. I've learned alot, since the financial meltdown,while dealing with several banks on real estate transactions .As long as you don't need the money they are willing to lend, heaven help you if you actually need the money, and these are the SOB's that got us in this crisis!!!!!!!!

[ljones190]

Keep in mind most banks will only give a home equity line of credit on your primary residence. Some will approve you on a second home but will ask for 2 to 3% above prime. The best I could do was 1% over prime, min. rate 4.5%. We have not paid off our bond yet, we will wait until we move down full time.

[slomoe1954]

Although the IRS Publications can be helpful, they can be misleading and are not authoritative. Treasury Regulations are authoritative. Here is what they say about interest on real property assessments.

Reg §1.164-4. Taxes for local benefits.
Effective: Reg. §1.164-4 predates P.L. 99-514, 10/22/1986, the Tax Reform Act of 1986.

(a) So-called taxes for local benefits referred to in paragraph (g) of § 1.164-2, more properly assessments, paid for local benefits such as street, sidewalk, and other like improvements, imposed because of and measured by some benefit inuring directly to the property against which the assessment is levied are not deductible as taxes. A tax is considered assessed against local benefits when the property subject to the tax is limited to property benefited. Special assessments are not deductible, even though an incidental benefit may inure to the public welfare. The real property taxes deductible are those levied for the general public welfare by the proper taxing authorities at a like rate against all property in the territory over which such authorities have jurisdiction. (b) (1) Insofar as assessments against local benefits are made for the purpose of maintenance or repair or for the purpose of meeting interest charges with respect to such benefits, they are deductible. In such cases, the burden is on the taxpayer to show the allocation of the amounts assessed to the different purposes. If the allocation cannot be made, none of the amount so paid is deductible.

The local benefits referred to in paragraph (b)(1) are streets, sidewalks, and similar construction projects. Both repairs to and interest related to such local benefits are deductible according to the regulations. There is no requirement that the interest be related to the repairs.

[Mama C]

just wanted to put my two cents worth in---one post was correct that the sales people for The Villages are not Realtors but sales people except. .....that only applies to new homes that The Villages sell---sales people who sell pre-owned homes for The Villages have to have a sales license

[buggyone]

The bond is just one more of my reasons that a resale home is usually a better deal than a new home. I bought my resale about 3 years ago and basically have NO bond on it. Friends who bought new about the same have a $20,000 bond. Big difference!

Also, price negotiation is another big reason to buy a resale. In a new home, there is NO negotiation - sometimes a reduction if you can close very soon - but with a resale, there is always room to negotiate with the seller. If they are motivated, you may be getting a really excellent deal.

ALWAYS use both a Villages Property agent and an MLS agent. Neither can show each other's listings. It is not necessary to sneak around doing that. It is a common practice that is used by home buyers.

[graciegirl]

Have to say I am very disappointed that the village realtor was misleading about these issue and a couple others. Wasn't necessary. We still would have bought - just gives me an uneasy feeling. If the truth wasn't told on these issues, what else am I going to be surprised about.

Did they fail to tell you about it or did they lie?

[Bogie Shooter]

Originally Posted by PatandBob
Have to say I am very disappointed that the village realtor was misleading about these issue and a couple others. Wasn't necessary. We still would have bought - just gives me an uneasy feeling. If the truth wasn't told on these issues, what else am I going to be surprised about.


Did they fail to tell you about it or did they lie?

Always here to help you Gracie..........PatandBob probably forgot what was said since their post was dated March 2011.:D

[Fourpar]

:("My point was not to get into the nuts and bolts of Florida real estate licensing law. But, as you say, if the Villages salespeople have licenses, they are most like Real Estate Sales associate licenses, not the more rigorous Real Estate Broker licenses which I previously referred to. And, more importantly, there is a conflict of interest, as they are not working for you, the buyer, they are working for The Villages."

..No conflict under Florida Real Estate Law (FS475), They represent The Seller - TV. Too bad most buyers do not understand that up front.:(

[Tom Hannon]

I just noticed Bill-n- Brillo have 3921 post. That means by the end of the day Bill should break the 4000 mark. Let me be the first to congratulate him.

[Bill-n-Brillo]

I just noticed Bill-n- Brillo have 3921 post. That means by the end of the day Bill should break the 4000 mark. Let me be the first to congratulate him.

Tom...........you really do need to get back on those meds, my friend!

:1rotfl:

Bill :wave:

[EdV]

The term Realtor® is often misused as has been done throughout this thread. Here is the definition:

The term REALTOR® identifies a licensed professional in real estate who is a member of the National Association of REALTORS®. Not all licensed real estate brokers and salespersons are members of the National Association, and only those who are can identify themselves as REALTORS®.

[Gerald]

If you really want the correct answer. Talk to a tax pro.