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I need a little education on Municipal Bonds?
I live in Texas and I heard that Municipal Bonds are free from federal income tax? Could someone elaborate on this? Explain how the taxes work, do you write off the bond investment on your income tax return. I over heard some financial guy talking about you can write off a certain amount for your wife and a certain amount for yourself and avoid paying any federal income taxes altogether, seems too good to be true, but was he getting at something? Please only answers for CPA or Tax specialists. Be specific as far as the qualifications and the amount that can be written off. Thanks.
2 Answers
- Anonymous7 years agoFavorite Answer
Municipal Bonds are tax free in the aspect that the interest you receive from them is not taxable. Ordinarily, bond interest is taxable. You cannot deduct them from personal income taxes. However, in certain instances, such as if you had to borrow money to invest in Municipal Bonds, you may be able to deduct that interest from your taxes.
- ?Lv 67 years ago
You don't have to be a CPA or a tax specialist to know the answer to this simple question. Muni debt is tax-advantaged because interest isn't Federally taxable. In many (most? all?) states, interest from muni debt originating in your own state is exempt from state taxes as well. "you can write off a certain amount for your wife and a certain amount for yourself and avoid paying any federal income taxes altogether" is just not true. Note that capital appreciation on muni bonds is taxable.
Qualifications: Ph.D./CFA smarter than any CPA/tax specialist who ever lived.
