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Both state and local government entities issue municipal bonds, and the interest is generally exempt from federal income tax. This is done because the funds from the bond issue will be used to fund necessary government services or infrastructure projects. In addition the agencies issuing the bonds are given lower interest rates when they invest in public services and projects.
In most states, if you buy municipal bonds, the interest income you earn will also be exempt from state taxes. If you live in a metropolitan area with a local income tax and you invest in bonds issued by a local government agency, that interest income will be tax-free on the local, state, and federal level.
Categories of municipal bonds include the following:
● Revenue bonds – project revenues, such as parking fees, are used for principal and interest payments.
● General obligation bonds – These are backed by the issuing agency, and they entail less risk because they are linked to the tax base, rather than some source of revenue.
Other characteristics of municipal bonds
Today, many governmental agencies insure their bonds as a guarantee that the principal will be repaid. In this case, the issuer feels that purchasing insurance is less costly than paying an interest rate that is based on their credit rating. When investors buy AAA municipal bonds that are insured, the risk they assume is minimal.
Similar to corporate bonds, municipal bonds also have credit ratings, and certain municipal issues will pay a higher interest rate when there is additional risk. For example, if a revenue bond is used to finance a parking garage and the projected revenue fails to meet expectation, the bondholder will be at risk. Usually, a revenue bond will have a reserve fund, which allows the issue to cope with a temporary revenue shortfall.
If you are subject to a federal or state alternative minimum tax (AMT), the interest income earned from municipal bonds that are categorized as “non-qualified private activity bonds” may entail payment of the AMT, and this would not be a wise investment in your case.
Wiki User
∙ 10y ago
Wiki User
∙ 14y agoMunicipal bonds are bonds in which the interest income is exempt from federal income tax,
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What are the two types of municipal bonds?
Municipal bonds are either general obligation or revenue bonds.
How are municipal bonds used?
Municipal bonds are used to borrow against assets.
When are municipal bonds exempt from taxes?
Municipal Bonds are bonds that are tax exempt from many tax offices. Municipal Bonds are exempt from tax when they are accepted by the local tax office depending on the law of the state.
Which Oregon Municipal Bonds are available?
I believe this is the best and most updated list of Oregon Municipal Bonds that are available. http://investment-income.net/rates/municipal-bonds-rate-page
Where can you get insured municipal bonds?
When looking to secure insured municipal bonds to gain some advice before securing any. Sites such as Bank Rate offer information about insured municipal bonds. Information about how to get insured municipal bonds is available from the news section of the Morning Star website.
Where can information on buying municipal bonds be found?
An investment banker can provide information on municipal bonds and stocks. When purchasing municipal bonds you are technically lending money to the bond and in return getting reimbursed with interest.
What are some websites that I could learn about municipal bonds?
Municipal bonds are isused by counties, cities and states. They can be purchased directly from them upon their release. Another way to buy municipal bonds is through a broker.
Where does one find information about purchasing municipal bonds?
One can find out information about purchasing municipal bonds from the Securities and Exchange Commission website. There is an informative bulletin regarding municipal bonds located on their website.
What has the author William L Raymond written?
William L. Raymond has written: 'State and municipal bonds' -- subject(s): Investments, Municipal bonds, State bonds
How many municipal bonds exist?
As of January 2011, there were 1.2 million different municipal bonds issues according to Bond Buyer.
How do you find available Oregon taxfree municipal bonds?
Go to Income-Investment.net Oregon Municipal Bonds they have hundreds. www.Investment-Income.net.
Are interest earnings from municipal bonds tax exempt?
No, interest earnings from municipal bonds are not tax exempt at the federal or state level.
