Face-Amount Certificate

It's a little bit like an IOU. Or actually...a lot like an IOU, only face amount certificates are usually backed by a specific asset, like a home. Or a condo complex. Or an asset of sizeable value, like a plane, a train, or a fleet of cars.

An issuer says something like, “I guarantee that I’ll pay you a thousand bucks, either fully 14 years from now if you pay me five hundred 72 dollars and 12 cents today in cash...or I may choose to pay you back 200 bucks of that thousand in installment payments every few years along the way.”

It’s a bit in the vein of how T-Bills are sold at auction. They sell at a grand n months later, and get auctioned for like $982.12 or something like that. The big diff? T-Bills are backed by the U.S. government, while Face Amount Certs are backed by, um...ant condos. Or worse.

FACs used to have all kinds of tax advantages, in that you didn’t owe tax on them until the face amount was paid. But today, the tax system requires that bonds, or bond values, get marked to market...or their market value...so that if something is bought at a huge discount, the owner of that bonds pays the predicted gain taxes on that bond along the way.

Not nearly as advantageous as being able to wait until the very end to pay the taxman. Or, depending on the size of your home…the Ant Man.