Housing Assistance: An Inventory of Fiscal Year 2010 Programs, Tax Expenditures, and Other Activities

U.S. Government Accountability Office

Veterans housing bonds interest exclusion

Administering Agency/Entity Internal Revenue Service
Short Description Allows holders of veterans housing bonds to exclude interest from taxable income. Bonds issued by state and local governments must be used to provide mortgages at below-market interest rates on owner-occupied principal residences for homebuyers who are veterans. Since 1984, bond issuance was restricted to five states Alaska, California, Oregon, Texas, and Wisconsin. The loans were restricted to veterans who served in active duty any time before 1977 and applied for a mortgage within 30 years after leaving the service or before January 31, 1985; thereby, imposing an effective sunset date of 2007. The Heroes Earnings Assistance and Relief Tax Act of 2008 increased the annual issue dollar limits for Alaska, Oregon, and Wisconsin. In the case of California and Texas, the same act removed a provision restricting eligibility to veterans who served before 1977.
Primary Purpose Increase availability of mortgage loans
Type of Housing Supported Homeownership
Type of Assistance Tax exclusion, exemption, or deduction
Estimated Revenue Loss1 $20,000,000; veterans housing bonds are classified as private activity bonds because a substantial portion of their benefits accrues to individuals rather than to the general public.

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