New Municipal Bond Benefit
October 8, 2009 by: The Tax ManMunicipal bonds offer investors three significant tax advantages.
Municipal bond interest is exempt from regular federal income taxes.
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Because it is exempt, the interest does not have any effect on adjusted gross income (AGI). Keeping AGI as low as possible is often a tax planning goal.
Many states do not tax their residents on the interest they receive from in-state bonds.
The American Recovery and Reinvestment Act of 2009 has added a fourth potential advantage. Investors who buy private activity bonds issued in 2009 and 2010 do not have to include their bond interest in income for alternative minimum tax (AMT) purposes.
If AMT is a concern, investors can reduce their exposure by avoiding older private activity bonds. The issuer’s official statement usually discloses a bond’s AMT status.
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