Is Municipal Bond Income Ever Taxed?
Municipal bonds are highly popular with investors for two reasons. One is that there are tax exempt municipal bonds that allow investors to maximize their after-tax returns. And second, there are some outstanding bonds available because of the attractive interest rates they offer. |
|
Municipal bonds are debt securities issued by state or local governments. This is the way these governments raise funds to build hospitals, roads, bridges, schools and universities. Municipal bond, like any other bond, pays regular dividends and once the bond matures, the investor is paid his principal amount.
One question that is foremost in the mind of an investor who is looking to maximize his income whether municipal bond income is ever taxed. Well, usually the interest payments that an investor receives on municipal bonds are exempt from federal income tax. However, if the investor comes under the purview of alternative minimum tax (AMT), he would have to include certain interest payments as part of his taxable income.
In majority of cases, the investor does not even have to pay state and local income taxes on the interest payments earned provided he is living in the state where the municipal bond was issued.
Therefore, municipal bonds are perfect for investors who come under the high tax bracket.
Although the interest income from a municipal bond is not subject to federal income tax, you may still have to declare it in order to get other tax calculations like Social Security benefits. Therefore, when filing your returns, it is best to consult a tax attorney who can help you out with all the details.
More Articles :
|
