are municipal bonds tax exempt
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An Overview of Municipal Bonds Some Municipal Bonds are Federally Taxable. The federal government does not tax most activities of states and municipalities, giving most muni bonds tax-exempt status, but some activities do not fall under this tax exemption.
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- Market prices of zero-coupon bonds tend to be more volatile than bonds that pay interest regularly. Original-issue discount bonds. These are municipal bonds issued at a price below face value (par) which qualify for special treatment under federal tax law. The difference between the issue price and the face value is treated as tax-exempt income rather than as capital gains if the bonds are held to maturity.
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What are bonds? The interest from municipal bonds generally is exempt from federal income tax and also may be exempt from state and local taxes for residents in the states where the bond is issued. As with any investment, bonds have risks.
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About Municipal Bonds What Are Municipal Bonds? Municipal bonds are debt obligations issued by states, cities, counties and other governmental entities, which use the money to build schools, highways, hospitals, sewer systems, and many other projects for the public good.
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"Are concerns about ""bond ladders"" valid?" Because the municipal bond yield curve is typically steeper than is the Treasury bond curve, there are times when even higher tax bracket investors can benefit from buying taxable bonds or FDIC-insured CDs for the shorter maturities in the ladder and municipals for the longer end.
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Municipal Bond Participants: Bond Counsel The Agency constitutes a corporate governmental agency and a public. benefit corporation under the laws of the State of New York, and therefore, in the exercise of its. governmental functions, including the issuance of its bonds or notes, is exempt from the. imposition of any sales and use tax.
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What Are Municipal Bonds â Pros & Cons of Investing Municipal bonds bear interest which is paid at either a fixed or variable rate, depending on the terms of the bond. The issuer of the bond (i.e. the local government) receives a cash payment from the investor in return for agreeing to pay the scheduled rate of interest to the bond holder.
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- Municipal bonds are exempt from most taxes. Stocks are shares of the equity of a company. They represent claims on the corporation's assets and future earnings. As a company's actual earnings and anticipated future growth and earnings increase, the value of each share of stock increases, and vice versa.
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- One of the most attractive yet overlooked areas in the municipal bond market is the pre-refunded bond. Bonds are often. advance refunded when interest rates drop to the point where issuers can refinance their outstanding bond debt at a substantially. lower rate of interest.
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The Basics Of Municipal Bonds Interest-Rate Risk: The interest rate of most municipal bonds is paid at a fixed rate. The rate does not change over the life of the bond. If interest rates in the marketplace rise, the bond you own will be paying a lower yield relative to the yield offered by newly issued bonds. Tax-Bracket Changes: Municipal bonds generate tax-free income, and therefore pay lower interest rates than taxable bonds.
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How Municipal Bonds Work The last type of municipal bond is a taxable municipal bond. Taxable municipal bonds exist because the federal government doesn't finance certain types of projects that don't have a clear benefit to the public, like local sports facilities or the funding of a faltering city pension plan [source: Securities Industry and Financial Markets Association].
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Beware Of Pension Obligation Bonds These three little letters—POB—can be a pox on your portfolio if you own them or were pressured into buying them. Pension Obligation Bonds do not belong in your portfolio. The reasons are simple. These taxable municipal bonds are issued by state or local governments for payment of obligation to their employee pension fund. Issuing such bonds allow the state or local government that cannot make its payments to the pension fund to borrow the money, then invest it in the stock, bond, private equity or real estate markets. A gamble if there ever was one.
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Federally Tax-Exempt Income Dividends The Tax-Exempt Bond Fund of America® did not pay any federally tax-exempt income dividends derived from municipal bond interest subject to AMT. You’ll need the amount reported to you in Box 11 of Form 1099-DIV, Specified private activity bond interest dividends, to calculate your AMT if that tax applies to you.ll or some of your federally tax-exempt income dividends may be taxable in your state or jurisdiction. In fact, some states, such as California, require that mutual funds report the amount of federally tax-exempt income dividends paid to residents of those states.
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Are Municipal Bonds Exempt From State Taxes? No state can tax bond interest issued by U.S. territories such as Puerto Rico, Guam, and the U.S. Virgin Islands. A resident of any state can buy bonds issued by the territories and have the interest tax-exempt from their state’s income taxes.
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About Municipal Bonds interest payment on the bond is deemed to be a partial interest payment and a partial. return of the bondholder’s investment. Consequently, the basis of a bond (whether the bond interest is taxable or exempt from. Pennsylvania personal income tax) includes any premium paid on the bond.
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Should You Consider Muni Bonds? Most municipal bonds are exempt from federal taxes. If you’re investing in a local municipal bond (state, county, or city), it will also be exempt from local taxes but check your local tax laws for confirmation. If you invest in a municipal bond in another state, county or city you will likely have to pay taxes.
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Ending Tax Breaks On Municipal Bonds Shifts Burden To The Rest Of Us Traditionally, municipal bonds have attracted investors because the interest income is tax exempt for federal income tax purposes. Depending on the investment, the interest income may also be exempt for state and local income tax purposes.
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Taxation rules for bond investors Series E and EE savings bonds are also state and local tax free, except that the interest on them may be deferred until maturity. Series H and HH bonds pay taxable interest semiannually until maturity. Series I bonds also pay taxable interest, which may be deferred like Series E/EE bonds. The interest from Series E and I bonds may also be excluded from income if the proceeds are used to pay higher education expenses.
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Are Non-AMT Munis Always Totally Tax-Exempt? Muni bonds (the vast majority of them anyway) are exempt from federal income tax by act of Congress. Whether a muni bond is also exempt from state income tax is up to each state. Most states have an income tax, and most states exempt muni bonds issued in the state, while taxing muni bonds from other states.
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Series 7: Municipal Debt -The interest income from municipal bonds is exempt from Federal income tax; but is subject to State and Local tax. However, if a bond is purchased by a State resident, then the State exempts that issue from taxation as well. -Bonds of territories and posessions are triple exempt, no matter where the purchaser lives.
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- Revenue bonds make up the vast majority of municipal bonds. They are available in a variety of issues, with each issue varying by what it finances. Investors who want to buy revenue bonds need to know the varieties on the market, as well as how the projects they fund will produce income.
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Distribution Unless you own the fund through a tax-deferred or tax-free account, you owe federal income tax on most distributions, the exception being interest income from municipal bond funds.
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Should You Consider Muni Bonds? (For more, see: Avoid Tricky Tax Issues on Municipal Bonds.) Another advantage over corporate bonds is that municipal bonds have a much lower rate of default. In 2014, the municipal bond default rate was just 0.10%, an improvement over the 0.11% default rate in 2013. The corporate bond default rate usually ranges between 1.5% and 3.0%.
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