What is an economic development bond?

These bonds are essentially private transactions laundered through a public entity (such as an economic development authority) to become tax-exempt and thereby save in interest costs. The best-known form of private-activity bonds are industrial revenue bonds (IRBs), which are also known as industrial development bonds.

What are Jeda bonds?

JEDA is the statewide conduit issuer of tax-exempt and taxable special obligation revenue bonds. It is completely self-supporting, generating most of its revenue through bond-issuing activities and without cost to the taxpayers. Each JEDA bond contains language to that effect.

Are economic development bonds taxable?

Most bonds issued by government agencies are tax-exempt. This means interest on these bonds are excluded from gross income for federal tax purposes. In addition, interest on the bonds is exempt from State of California personal income taxes.

How do IRB bonds work?

An IRB is a variety of revenue bond, specifically a private activity bond. IRBs raise capital to fund the development of a manufacturing facility or equipment that will benefit the community at large; bondholders are repaid by the revenue the project generates.

How do revenue bonds work?

Revenue bonds are a class of municipal bonds issued to fund public projects which then repay investors from the income created by that project. For instance, a toll road or utility can be financed with municipal bonds with creditors’ interest and principal repaid from the tolls or fees collected.

What is a phantom bond?

Phantom Bonds means bonds issued in registered form under an indenture of trust by a state, municipality or political subdivision of either, if and only if: (i) the proceeds of such bonds are used by the issuer to purchase assets (other than Restricted Property); (ii) the issuer, as lessor, simultaneously leases the …

Are revenue bonds taxable?

Their interest payments are usually exempt from federal income taxes, and may be exempt from state income taxes if the bond issuer is located in the investor’s home state. For these reasons munis are often attractive to income-oriented investors looking to reduce income tax bills.

What securities can generate phantom income?

Phantom income can apply in instances of limited partnerships, benefits for non-married partners, debt forgiveness, zero-coupon bonds, owners of S corporations or limited liability corporations (LLC), and real estate investing, among other scenarios.

How do I avoid paying taxes on phantom income?

In the LLC context, the most common way to protect against phantom income is to include a provision—often called a tax distribution clause—in the operating agreement. A tax distribution clause requires the business to make distributions to cover the member’s tax liability from allocated income.

Can you lose money in bonds?

Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.