Tax Concepts and Considerations of Municipal Bonds

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Bonds are available in both taxable and tax-exempt formats and there are tax concepts to consider when a person is investing in bonds. Each type of bond, whether tax-exempt or not, has different tax aspects.

Tax-exempt municipal bonds and taxable bonds are discussed, explaining how some of the tax rules work for these investments and their investment yields.To know more about tax concepts and municipal bonds you may visit https://taxpage.com/.

Acquisition of Bonds

When acquiring tax-exempt corporate bonds at face value or par, there are no immediate tax results. 

Bond Premium Amortization

When tax-exempt municipal bonds are acquired at a premium, the premium is amortized for the span of the bond term.

Interest Excluded From Taxable Income

Usually, tax-exempt municipal bond interest is not added to income for tax purposes (although, the interest may be taxable under alternative minimum tax rules).

Alternative Least Tax Considerations

Interest on municipal bonds is ordinarily not included in income for routine federal income taxes. Interest earned on certain municipal bonds called "private activity bonds" is involved in the computation of alternative minimum tax (AMT).

A Bond Sale or Redemption

Selling a bond before maturity or redemption has the same tax consequences as a taxable bond. Gains from the sale are taxable. Losses are decreased from other gains, and losses in a surplus of gains are allowed up to $3,000, the remaining losses are carried over to future years.

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