Tax Treatment of Municipal Securities
Chapters in this video
- 0:00 Why the muni tax swamp trips up Series 7 candidates
- 1:02 Puerto Rico bonds and triple tax exemption
- 1:50 Mandatory premium amortization and the double hit
- 3:08 OID versus market discount: why intent matters
- 3:45 The de minimis rule and the all-or-nothing cliff
- 5:14 Private activity bonds, AMT, and taxable munis
- 6:35 Bank qualified bonds and the 80% rule
- 7:27 Rapid-fire exam recap
What this video covers
- Why United States territory bonds (Puerto Rico, Guam, United States Virgin Islands) are triple tax-exempt regardless of where the investor lives
- Why premium amortization on tax-exempt munis purchased in the secondary market is mandatory, not deductible, and leaves no capital loss at maturity
- The difference between original issue discount (OID) accretion (tax-free interest) and market discount (ordinary income), and why issuer intent drives the tax answer
- The de minimis rule formula (0.25% times years to maturity times par) and the cliff trap: if you breach the threshold, the ENTIRE discount becomes ordinary income, not just the excess
- Why private activity bonds are subject to the alternative minimum tax (AMT) while essential purpose bonds are not, and how that shows up as a yield differential on the exam
- Why Build America Bonds (BABs) and other taxable munis exist, who actually buys them, and where they fit in tax-advantaged accounts
- Why the 80% interest deduction on bank qualified bonds benefits the bank, not the individual investor
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. When you're ready to drill the topic, the full Series 7 course adds adaptive practice questions and spaced-repetition flashcards.