Interest portion of bond payment tax deductible?
 

I went to open house today on a 3 yr. old home that still had a fairly large bond balance. The TV sales agent told me that the interest portion of the yearly bond payment is tax deductible. Is this true?

Simple answer...NO!!

Your Villages Properties agent told you WRONG.

The answer is NO!

I was told NO

According to our AARP tax preparer..."NO".

That is scary -- this agent said he had worked for TV for 10+ years. I wonder how many other people he has given this misinformation to? :ohdear:

The principal portion is not tax deductible but are you all sure the interest of the bond itself is not tax deductible? My husband is a CPA, we are not there yet (we own a home in TV but just bought it in November) ; he is going to research this as he is very surprised that the interest itself would not be tax dedutible. It is interest paid on a personal residence and the bond is secured by the property. We are interested in becoming more educated on this. If there is a technical reason whay the interest itself would not be tax deductible, he is curious what it is. Help inform us with details. Thanks.

We would all appreciate knowing the results of your husband's research.

paying a large bond makes you feel better if you think you can

My tax preparer told me that the interest on the bond is deductible, just like the interest on the mortgage.

I am definitely interested in the correct answer about the interest portion of an owner's yearly bond payment being tax deductible.

Some people do
 

When looking at "For Sale by Owner", many people told me they deducted the "Total Amount" of the tax bill. If they get audited, they will play "dumb" ! Sounds like Corporate "risk management".:22yikes:

It would sure be great if your husband found out the correct information about this and than posted on here...thanks

The tax bill you get from Sumter county ..CLEARLY....identifies the bond payment as a Non-Advolrem tax, which is not deductible as an interest expense. How people "legally" get around this is to take a home equity loan out on your house and pay the bond off outright ....then you are only paying the HEL where the interest is deductible.

See pub, Publication 535 (2011), Business Expenses

And Tax Topics - Topic 503 Deductible Taxes

:read::read:

Real Estate Taxes

Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property.

Taxes for local benefits. Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. You should increase the basis of your property by the amount of the assessment.

You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax.

Example.

To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. The city is paying the principal and interest with the annual payments made by the property owners.

The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. The part of the payments used to pay the interest charges on the bonds is deductible as taxes.

Does anyone know what the correct name for this bond is (besides tax exempt)? My husband is going to send out on the CPA blog. He still believes the interest is tax deductible but intends to follow up on Tuesday with some research. It is our Saturday morning debate here in Seattle!

Just some more follow up.

Bob is reading a blog on this and it is not clear. We think in every neighborhood everyone pays the same bond, is that correct or no?

I know at the Haciendas everyone pays $15,000 no matter the cost of the villa and there is at least a $100,000 spread. Some comments on the blog say that is not based on the value of the home but the neighborhood. It says that if the bond is for the improvements or repairs or for bond repayment and interest (a passthorugh) for money borrowed by the district, there are two different opinions about interest deduction, yes and no. It is sort of crazy making.

Now that Bob has read more, he is thinking that since the bond is not tax deductible then interest in not tax deductible but this is not definitve nor is the blog by the tax specialists. Stay tuned until next week unless he discovers a definitive. He is intent on understanding this, getting the facts and the answer.

Here are a few local CPA's, maybe a phone call would save a little time.

J.D. Sumter & Associates, Inc.
16910 South U.S. Hwy 441
Baylee Plaza - Suite 203
Summerfield, FL 34491
(352) 307-4366

David Mckiel Cpa
881 Eldra Loop
The Villages, FL 32162-2427
(352) 259-1906

American Tax & CPA Service
916 Bichara Blvd
Lady Lake, FL 32159 Phone: 352-753-2507

I believe that the bond is not calculated by anything that has to do with your property size or cost--Ex: your bond will be the same as everone else in your section --no matter the amount you paid for the home or the size of the home or property --It is calculated from the number of homes in the section Vs the cost of infrastructure to those homes ... As it was explained to us by our salesperson --therefore the cost is not based on the residence itself --so It is not deductable --- Wish it were ....

Good Luck :posting:

THIS IS FROM THE DISTRICTGOV.ORG WEB SITE. (Enjoy!)
What is the Bond Debt Assessment for?

The bond debt assessment reflects each lot’s proportionate share of the cost of building the infrastructure within its District or for which its District has responsibility. It is the most equitable method of distributing costs between the properties that benefit from the infrastructure. Infrastructure includes storm water systems, underground pump stations, water retention areas, curbs, gutters, streetlights, transportation trails, underground piping, etc.

How does the District arrive at the amount? Does everyone pay the same amount?

The Bond Debt Assessment was set at the time the bond used to build the infrastructure was issued. The formula for calculating each lot’s proportionate share starts with the total cost of the bond (including interest) issued to pay for the infrastructure. That cost is divided equally among each assessable acre in the “phase” of the District for which the bond was issued. That gives you a cost per acre. The cost per acre is then multiplied by the number of acres in the unit in which you live. That gives you the obligation for the unit as a whole. The unit total cost is then divided by the number of lots or parcels in the unit, and that computation gives you the amount of the assessment levied against each property. Therefore, each lot within a unit pays the same amount.

How do I pay for the Bond Assessment if I don’t pay it in full?

These assessments are scheduled to be repaid in annual charges that are in the Non-Ad Valorem section of your county property tax bill until they are paid off. The annual assessment includes principal, interest and an administrative fee.

What kind of lien is it? If I don’t pay if off, what happens when I sell my home?

The bond assessment is a lien on the land only and is fully transferable upon sale of the property. As such, the new owners are responsible for paying the remaining amount, either in full or annually on their tax bill.

Should I pay off the bond debt?

You should contact your accountant or financial advisor for advice as individual circumstances vary.

Can I pay by credit card?

No, the bond can only be paid by check (personal or bank) or money order.

Can I make a partial payment of total assessment due?

No, you cannot make a partial payment on the assessment due. Florida law requires payment in full or through the annual assessment on your tax bill.

Can I deduct this prepayment on my income taxes at year-end? Can I deduct the bond assessment on my property tax bill from my income taxes at year-end?

You should contact your accountant or financial advisor for advice regarding income taxes.

Why is the payoff deadline late in July?

The payoff figure is good only through late July because the annual assessment roll must be certified to the Tax Collector to remove the assessment from your tax bill. It would be too late to guarantee removal of the assessment from the tax bill you receive in early November if payment was made after the payoff deadline.

When will I receive the Release of Imposition if I pay off my bond in full?

You should receive your copy of the recorded Release of Imposition approximately 4-6 weeks after paying off your bond. If the Release isn’t received by then, please feel free to call our office at (352) 751-3900. Upon receipt of your copy, it is advisable that you keep it with the deed to your property.

What happens if my bond is paid off after the cut-off date in July?

You will receive one more year of annual debt assessment on the November tax bill. The amount of the payoff will be reduced slightly for the amount of principal included in the final annual payment to the Tax Collector.
Remember: Even if you pay your bond assessment, there will continue to be an annual maintenance assessment that pays for the ongoing costs of maintaining the infrastructure.

Your tax preparer is dead wrong,does he have a college degree or just a corner store flim flam man.I researched this topic until i was blue in the face(Kentucky Blue).The only way you can deduct the interest, is if you do a home equity loan.Read the rest of the informative post in this thread,from posters who actually spent the time to thoroughly research this subject, unlike your tax man.Incompetent tax preparers and ambulance chasing lawyers both have a place reserved for themselves in h*ll.

Do a search on TOTV for 'bond interest deductible'. You can read through prior threads on the topic to your heart's content.

Is the bond interest a legitimate deduction? No, IMHO. If you feel comfortable claiming it as a deduction on your taxes, that's certain each individual's prerogative.

I looked into this soon after we purchased our TOTV house and feel comfortable that the info provided by the IRS on the topic is pretty straightforward. Same info as referenced in jimbo's post.

Bill :)

Those who say no, that the interest on the bond is NOT tax deductible seem to be correct. My husband the CPA as well as our realtor who is well connected in many ways to those in The Villages both say no it is not deductible. So if you do try and deduct the bond and/or interest, it could come back to bite you one day.

Don't mess with the IRS!

Bond & maintenance deductible if you rent your home?
 

I rent my home in The Villages. I'm not sure how to handle the annual bond payment (about $1000) and the annual maintenance payment (about $500). I wonder if they are deductible as rental expenses, either as capital depreciation (bond or part of bond) or expense (maintenance), but I'm just starting to look into it. Anyone investigated this already?

I am a CPA and have also done taxes for nine years. The excerpt below is from IRS Pub 527 regarding rentals. It tells me you cannot deduct the bond but can deduct the bond interest and can deduct the CDD payment, if I understand correctly what each is for.


Local benefit taxes. In most cases, you cannot deduct charges for local benefits that increase the value of your property, such as charges for putting in streets, sidewalks, or water and sewer systems. These charges are nondepreciable capital expenditures and must be added to the basis of your property. However, you can deduct local benefit taxes that are for maintaining, repairing, or paying interest charges for the benefits.

I love that two Washington State CPA's are weighing in on this! My husband agrees with you that for a rental it is tax deductible. He does not think it is if you are living in the home however. You two should get together in November when we get there!

Thank you for sharing your understanding regarding a rental situation. Am I understanding this correctly: (1) the annual CDD maintenance expense (about $500) can be deducted as an expense, (2) the annual interest on the bond can be deducted as an expense, (3) the amount of the remaining bond balance when I bought the re-sale house (it was available for rental right away) should be added to the basis of the property?

It is my understanding that these items are not deductible to a resident homeowner as they are not taxes levied by a government body .

Yes, that is the way I read IRS pub 527 for RENTALS. None of this is deductible for an owner occupied home. Both our Villages Sales Rep. and loan officer at citizens made the owner occupied info clear before we built in April 2012.

I think there is a question on the deductability... and I believe that many/most TV'ers deduct in the face of ambiguity. I bet if you asked the IRS - you might get differing answers (shocking!). Sometimes asking for forgiveness is better than asking for permission.

Problem is would not the IRS look extra careful on returns coming from V illages addresses? And if you make a mistake and underpay, you will be charged interest and penalty. Plus, they may go back many years.

Deducting Home Interest may go away anyway with tax reform.

I'm with you on this, penalties/interest not when the waters are this muddy, they would be waived.

Thank you. At some point, I'm going to call the IRS and have this conversation about a rental situation. When I do, I'll let you all know what they say.

I would bet you'll find that no part of the bond payment is deductible.

I love research. After reading Jimbo's post above re IRS Topic 503 and thisIRS General Counsel letter I found via this link --http://www.irs.gov/pub/irs-wd/12-0018.pdf--I have a different take on deductibility of Bond interest and CDD taxes. I would deduct them both unless I read something different. I think we were just told the "bond" wasn't deductible. I don't think we asked about the interest.

I did taxes in WA state where the items in the CDD tax were part of our regular tax bill. We had a LID (Lake Improvement District) which is a special, costly assessment and this was deducted along with other assessments as part of the total property tax. I worked for a large firm and this was SOP.

The General Counsel letter also has some interesting things to say about "ad valorem" taxes.

Anyone planning to call the IRS for clarification--you will not get the same answer from any two people at the IRS and the verbal response can be overturned should you be audited.

Thanks for all the discussion on this subject.

Oh, I love these newbie replies. It is going to be interesting to see how many of them get hit for interest and penalties if they try to deduct bond interest.

Best idea, folks, pay off your bond by taking out a home equity loan. The interest on a home equity loan is less than the bond interest and that is deductible for the IRS - unless an un-named candidate gets his way (not a political statement, Moderator, but just information).

Tangible Property Reminder
 

....

More from the 'newbie'. Why in the world would I get a home equity loan and deduct a few bucks over the next 5-7 years before I sell my house and effectively 'eat' the $20,000 bond cost? I want to transfer the bond to the buyer and this isn't going to happen with a home equity loan. To each his own.

You are buying your home in The Villages with the intent of selling it and moving in the next 5 - 7 years? I bought my home here in The Villages to stay in and not to move again. But, as you say, each to their own.

Also, when I bought my re-sale home 3 years ago, it had only a $1,500 bond on it. Friends bought their new homes at the same time and have a $20,000 bond. I understand now that bonds on new homes are higher than $20,000 and go up to $50,000. Just another reason to look at re-sales.