What is a private activity bond?

A private activity bond is a bond issued by the government to finance a private facility or project. In this case, “the government” can mean local, state, or, rarely, the federal government. According to The IRS, private activity bonds can be used for projects that fall under section 141(b)(1), 141(b)(2), and 141(c). These sections are fairly specific, so if you’re considering a private activity bond, take the time to review who is eligible and what stipulations apply to you.

How are private activity bond interest rates calculated?

Private activity bond interest you will be glad to know, does not count towards your gross income on your taxes unless the private activity bond is a qualified bond. If it is, the bond is subject to regular taxes. If it isn’t qualified then it isn’t counted towards your annual gross income.

What are the private activity bond tax regulations?

Private activity bonds are usually issued with the intent of providing funds to a project that, while private in nature, do have some public use or benefit. Because private activity bonds are exempt from federal taxes (although the interest is not), they can help the private user reduce his or her financing costs for the project. Again, the rules and regulations surrounding private activity bonds are very strict and specific, making them one of the rarer types of private bonds.

Investors provide private equity capital in return for achieving risk adjusted returns that will be greater than those that could be achieved in public equity markets. Investors typically don’t invest in privately held companies; they develop a diversified portfolio of private equity funds instead.

Private equity firms usually receive the return on their investment through an initial public offering or a merger acquisition. Occasionally you will also see recapitalization where cash is distributed to shareholders.