What is a tax exempt bond?

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17th Nov 2009 by Joseph Pousada

In the United States the Supreme Court issued a ruling disallowing different levels of government the ability to tax each other. As a result treasury securities are exempt from state and local income taxes and municipal securities are exempt from federal income taxes. In addition some states (i.e. New York, California…) have passed state legislation that makes their own state municipal bonds exempt from state and local income taxes as well. This state and local tax exemption applies to residents in the same state of the issuing bond who would pay state and local income taxes. (A resident of New York City may qualify for triple tax exemption on income from a New York State municipal bond but a resident of Vermont would only be eligible for federal tax exemption on the income from the same New York State municipal bond.)The municipal bonds that are used for certain projects may be subject to a Federal Alternative Minimum Tax (AMT). It is important to go over any prospective investments with your financial advisor and tax advisor to ensure you maximize your goal of a tax exempt fixed income investment.

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1st Nov 2009 In Bonds 1 Answers | 436 Views
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