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Municipal Bonds
Investors should be fully aware of the complete tax implications of a municipal bond before investing.
Many municipal bonds are also free from state and local taxes. The tax issues for municipal bonds varies from state to state so check with your local tax professional. Because of the tax exemptions from municipal bonds, the investment return from a municipal bond may be higher than the real rate of return from a taxable bond even though the taxable bond may have a higher pretax yield.
Before buying and selling municipal bonds, you'll want to know the different types of municipal bonds and bond funds, how to evaluate the tax advantages of municipal bonds and understand how much you'll actually pay when buying or selling a municipal bond. Municipal bonds are guaranteed by a local government or a group of local governments, and are assessed for risk and rated accordingly. Interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt. Income from most municipal bonds is exempt from federal taxation.