Is tax increment debt exempt from federal or state income taxes?
Depending upon the purposes for which the funds are expended, interest income on the tax increment debt may be exempt from federal income taxation, as well as from state income taxation. If funds are used to make an economic development loan and/or if security is provided by a private enterprise, in the form of, for example, a minimum assessment agreement, the interest income will not be exempt from federal taxation, but it may still qualify for state tax exemption.
