Federal Income Taxation of Municipal Bond Interest
Federal Income Taxation of Municipal Bond Interest: Interest income on municipal bonds is not always free of Federal income taxation. There are three primary ways that municipal bond interest income is taxed at the Federal level. First, the interest on some municipal bonds may be deemed as being taxable by the IRS if used to finance particular purposes – which in some cases can be deemed after the bond is issued as a tax-exempt bond. Next, retired taxpayers may pay Federal income taxes on the interest from all municipal bonds if their income falls within a range that causes social security benefits to be taxed. Finally, interest on “private activity” municipal bonds may be taxed to the extent that a taxpayer is being hit by the alternative minimum tax.
Biltmore Capital Advisors LLC is not a tax or accounting firm. Please consult your tax advisor to determine if these facts are relevant to your particular situation.