Taxability and the Customer's Tax Bracket
Chapters in this video
- 0:00 Why taxability belongs in portfolio cost and risk
- 0:26 Federal tax treatment of corporate, bank, Treasury, and municipal interest
- 2:21 The state exemption trap: state law, not federal magic
- 2:40 Why Ingrid's low bracket strands her outside the muni VIP rope
- 3:30 Tax-equivalent yield: the apples-to-apples translation tool
- 4:36 The exam bait: shiny munis paired with low-bracket customers
- 5:04 Rapid-fire exam recap
What this video covers
- How corporate bond interest and bank or money market interest are fully taxable as ordinary income at the federal level
- Why U.S. Treasury security interest is taxable federally but exempt from state and local income tax
- How municipal bond interest is excluded from federal gross income, with narrow exceptions
- Why the state exemption for municipal bonds comes from each issuing state's own law, not from the federal exclusion
- What tax-equivalent yield is: the taxable yield a security would need to match a given tax-exempt yield for a customer in a specific bracket
- How a customer's tax bracket determines whether a tax-exempt municipal bond or a fully taxable security nets more after-tax income
- Why exam questions pair shiny tax-free municipal bonds with low-bracket customers as a deliberate trap
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 82 course also includes adaptive practice questions and spaced-repetition flashcards, available in Free Beta.