Such transaction data and/or related information may not exist for all municipal securities and may not be required to be submitted to the MSRB for certain types of municipal securities transactions. The transaction data provided through the Real-Time Transaction Subscription Service represents municipal securities transaction data made available by brokers, dealers, and municipal securities dealers to the MSRB and related information. You shall bear all risk, related costs and liability and be responsible for your use of the Service. WE HEREBY DISCLAIM ALL REPRESENTATIONS AND WARRANTIES (EXPRESS OR IMPLIED), BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING THE SERVICE. We are providing certain data supplied to us by the Municipal Securities Rulemaking Board ("the Service") without warranties or representations and on an "as-is" basis. We’ll cover state taxation in another chapter.
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Additionally, the interest from the CD will also be taxed at the state-level whereas the municipal bond may be free of state income taxes as well.įor investors in high-tax states such as California and New York, the benefits of tax-free bonds are even greater than for residents of states without any state income tax such as Texas or Florida. The municipal bond in this case offers a better taxable-equivalent yield earning $400 tax-free annually. However, a person in the 35% tax bracket must pay 35% of the $600 in federal income taxes, which is $210 in taxes resulting in $390 after taxes. On an investment of $10,000, the bank CD earns $600 in annual interest while the municipal bond earns $400. Let’s say that a bank CD is paying 6% and a municipal bond issued in your state yields 4%. Taxable-equivalent yield is simple to understand as a concept. To compare the tax-free interest from municipal bonds to other taxable interest-bearing investments, people often compare the “taxable-equivalent yield” of a tax-exempt investment to a taxable investment. A person in the 35% tax bracket receives more benefit from the tax savings than does a person in the 25% tax bracket. Most municipal bond interest is also free of AMT or the alternative minimum tax.Īs a result, the higher the investor’s tax bracket, the benefit of the tax-free income becomes greater. Other tax exemptions can include being free of city income taxes as well in cities like New York City when qualifying municipal bonds are purchased.
(We will cover state taxation rules in a later chapter.) However, if the same LA resident purchased a Texas municipal bond, the income would still be tax-free on a federal level, but the California resident would owe California state income taxes since it is a bond issued out-of-state. For instance, a resident of Los Angeles can buy any municipal bond issued by a municipality in California and will not have to pay California state income taxes on the interest income. In most states, the interest income from municipal bonds issued by an issuer in the state is free from state income taxes in that state.
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