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Interest income from Treasury bonds is subject to federal income tax but exempt from state and local taxes. This exemption can be particularly beneficial for investors in high-tax states.
Interest income from most municipal bonds is excludable from gross income for federal income tax purposes, and may be exempt from state income tax as well, depending on the applicable state laws. [14] Internal Revenue Code section 103(a) is the statutory provision that excludes interest on municipal bonds from federal income tax. [15]
The interest income earned from municipal bonds is typically exempt from federal income taxes, and if you invest in bonds issued by your home state, the interest may also be exempt from state and ...
Municipal bonds generally carry less risk than stocks and are tax-exempt, which for higher tax-bracket investors effectively increases the return rate. It’s crucial to highlight though, that ...
The principal argument for investors to hold U.S. government bonds is that the bonds are exempt from state and local taxes. The bonds are sold through an auction system by the government. The bonds are buying and selling on the secondary market, the financial market in which financial instruments such as stock, bond, option and futures are traded.
Most states also exempt income from bonds issued by that state or localities within the state as well as some portion or all of Social Security benefits. Many states provide tax exemption for certain other types of income, which varies widely by state.
If you buy a bond issued in your own state, you’re typically granted a tax exemption from state taxes, as well. This makes municipal bonds particularly valuable in high-tax states like California.
Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. Examples of tax-advantaged accounts and investments include retirement plans, education savings accounts, medical savings accounts, and government bonds.