Tax Treatment of Variable Annuity Contracts
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
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