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Equity Sharing Agreement


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									Reporting Deferred Interest On Housing Loan Posted 7/16/2007

Our City has begun a First Time Home Buyer Loan Program. The funding is derived from Affordable Housing Fees levied on new development.
The loan is basically a 30 year below market rate deferred loan (typically the buyer has other loan(s) as well). The loan plus 3.5% simple interest is
due upon sale or at the term of the loan.

Finance Staff were discussing what is reportable to the Borrower as interest.
Although this is a below market rate loan is it reportable the same as a mortgage lender would on a 1099 INT?
If so, when do you report it. It seems that you would only report the interest when it is paid. So suppose someone lived in the property 5 years and
then sold it. They would owe the principal amount of our loan plus 5 years of interest. Would you report the equivalent of 5 years of interest all in
one year?

Paul S. Rankin , City of Dublin Administrative Services Director

AGENCY               RESPONDING PARTY                            CONTACT                               ANSWER
                                                                                                       Suggest consulting a tax attorney. IRS may have
Beverly Hills                                                 sgmiller@beverlyhills.org
                                 Scott Miller, Admin Services Director                                 regulations that impact the borrower deduction. Our loans
                                                                                                       require annual interest payments, so we report it annually.
                                                                                                       Interest should be reported in the year the amount is
Cudahy                           Mellie Deano                    deano@cityofcudahyca.gov
                                                                                                       actually paid.
                                 Joan Streit, Director Finance
Dixon                                                          jstreit@ci.dixon.ca.us                  I believe you would report it when paid.
                                 & Technology
                                                                                                       City reports in the year paid on a 1098 - Mortgage Interest.
                                                                                                       Currently have some loans that have a requirement to pay
                                                                                                       the greater of deferred interest of share of appreciation upon
                                                                                                       sale. (Similar to an equity share). If appreciation is paid
Emeryville                                                  kreid@ci.emeryville.ca.us
                                 Karen Reid, Accounting Manager                                        nothing is reported since it is not interest. Considering
                                                                                                       change to program to allow reporting of interest amount if
                                                                                                       appreciation is paid - otherwise the taxpayer gets no
                                                                                                       deduction if they fall under the appreciation / equity share
AGENCY               RESPONDING PARTY           CONTACT                        ANSWER
                                                                               Have a program however it is interest free payable upon
                                                                               sale. Revised to include an equity sharing agreement on
Grand Terrace                                   LRONNOW@cityofgrandterrace.org
                    Larry Ronnow, Finance Director
                                                                               recent loans. Program is administered by Bldg & Safety /
                                                                               Housing Dept.
                                                                                  The basic rule for individual taxpayers is that they calculate the
King City           Jame Larson                 jlarson@kingcity.com              tax owed on a cash basis, so they would only report interest
                                                                                  expense in the year they paid out the cash for the interest.
                                                                                  Correction it is reported on a 1098-INT when paid. The
Los Osos, CSD       Annajane Hugh, CPA          ahugh@losososcsd.org              interest may be recorded as deferred interest on the City
                                                                                  Recently the City entered into an agreement with Fremont
                                                                                  Bank to service loans. City process has been to report
Pleasanton          Dave Culver, Finance Directordculver@ci.pleasanton.ca.us      interest on a 1098-INT in the year the interest was paid.
                                                                                  Accounting Staff believe it would be reported in the year
                                                                                  paid regardless of the period covered.
Temecula            Jason Simpson               Jason.Simpson@cityoftemecula.org Report it when paid.
                                                                                 Outsource servicing of loans to Amerinational.
Walnut Creek        Fred Marsh, Finance Manager fred.marsh@gmail.com
                                                                                 (www.amerinational.net) They handle all tax reporting

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