Tax Treatment of Municipal Securities: Municipal Analysis and Pricing
Chapters in this video
- 0:00 U.S. territory bonds: triple tax-exempt everywhere
- 1:31 Premium amortization: mandatory and not deductible
- 2:28 OID versus market discount: tax-free versus ordinary income
- 3:35 De minimis rule and the all-or-nothing trap
- 5:06 Private activity bonds and AMT triggers
- 6:13 Build America Bonds: fully taxable municipals
- 6:44 Bank-qualified bonds: the $10 million and 80% rules
- 7:29 Rapid-fire exam survival recap
What this video covers
- Why interest on most municipal bonds is exempt from federal income tax, and why that drives lower nominal yields than comparable taxable bonds
- Which bonds are triple tax-exempt in every state: U.S. territory bonds including Puerto Rico, Guam, and the Virgin Islands
- The mandatory premium amortization rule for tax-exempt munis, why the amortized premium is not tax-deductible, and why there is no capital loss at maturity
- How original issue discount (OID) accretion on tax-exempt bonds is treated as tax-free interest, while market discount is taxed as ordinary income
- The de minimis threshold formula (0.25% x face value x years to maturity), and why exceeding it by even one cent makes the entire discount ordinary income
- Which municipal bonds trigger the alternative minimum tax (AMT): private activity bonds versus essential purpose bonds that do not
- Why Build America Bonds (BABs) are fully taxable at the federal level and suited for lower-bracket investors or tax-exempt accounts
- What bank-qualified bonds are ($10 million or less issuer), the 80% bank deduction on carrying costs, and why retail investors receive no extra tax benefit
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