Reconsidering Mello-Roos After the New Tax Law – Part 2

In the last issue, I brought up the question of if it was financially worth it to pay off your Mello-Roos given the fact that the new federal tax law limits the total of your state and local tax deductions to $10,000. I indicated that to try and get an accurate assessment of the value gained by paying off the bonds early, I would file for one of the Mello-Roos bonds on my own property. It took some time to get the information back, but I have it, so let’s take a look.

Disclaimer – I am not a financial advisor nor CPA. Please talk to a trusted advisor before making any financial decisions.

The bond I checked on is the Poway Unified CFD No 6. This is one of the 4S Ranch-specific Mello-Roos bonds. My 2017/2018 payment was $2,817. The bond was issued in 2003 and matures in 2013, so I am right at the midpoint. The payoff amount is $29,113.

If I assume that the Mello-Roos payment will not increase at all, then the return on the early payoff is about 5.3% (if you put the $29,113 into the bank you would need to earn 5.3% to make all your payments without running out of money). If the annual Mello-Roos payment increases 2% (as allowed), then the return is 7%.

So, it comes down to if you think you can earn more than the 5% (or 7%) with other investments. There is also the possibility that a new administration brings back the full deductibility of state taxes, in which case you would not feel very good about having paid it off.

On a personal level, I am earning clients much more than 5-7% investing in property out of state, and so I will continue to do that myself rather than pay the bond off.


re_voakauthorseal Scott Voak, MBA – Broker

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