taxation of municipal bonds
INTEREST INCOME
EXEMPT FROM FED AND STATE
CAPITAL GAINS
SUBJECT TO FED AND STATE
accretion of the discount on a municipal bond is an accounting process that increases the security's
book value
annual accretion amount info needed
dated date, maturity date, acquisition cost
expenses are also not
deductible
capital gains from selling municipal bonds are subject to
federal and state tax
interest income received from municipal bonds is exempt from
federal tax
federal government cannot tax
interest income form muni bonds
market discount will be treted as
interest income received
if bond bought at discount
may be accreted or reported as interest income
muni purchased or traded in secondary market
no capital loss if bond held to maturity
interest income received from municipal bonds is taxable only on the
state and local levels
equivalent taxable yield
tax free yield/100%- tax bracket
institutional muni investors maintain 2 sets of accounting records
tax purposes one for bookkeeping
equivalent tax free yield
taxable yield x (100%- tax bracket %)