taxation of municipal bonds

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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 %)


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