Definition of ‘double exempt’
Double the term exempt refers to the type of tax privileges attached to certain bonds, which allows to obtain the interest from the bonds are exempt from taxation in the combined income from both Federal and state taxes. For example, municipal bonds, also called Muni, is usually exempt from Federal tax and in some States where they are issued are also exempt from paying government taxes.
Breaking down the ‘double exempt’
The taxation status of slaves as double-exempt, in respect of municipal bonds, refers to the fact that the interest on these bonds is not taxed at the Federal or state level. In General, most States are not tax residents in tax revenues bonds that the state, its agencies, cities or other political entities. However, almost all States tax individuals on interest from bonds issued outside the state, although these bonds are not subject to Federal taxes. In other words, buying government bonds you live can give you the advantage of double free.
Municipal bonds, including those in which the interest is not taxed at state or local level, are attractive to taxpayers who wish to minimize or avoid taxes on interest income. These securities often pay such a low interest rate than taxable issues, such as corporate bonds, although depending on tax bracket and comparative yields, they can sometimes yield more after tax. Dual-exempt revenue bonds may be a preference item for the AMT in some cases.
From a tax point of view, this treatment method often causes bonds issued in the state more attractive than those issued outside the state. And to sweeten the pot, any interest from municipal securities is also exempt from local income tax in jurisdictions where such taxes apply, technically making them a triple tax.
Restrictions on dual released
Although dual-exempt bonds to feel that they are exempt from all taxes, there are some limitations. In some cases, for example, interest on the bonds will be subject to the alternative minimum tax, which is essentially another form of Federal tax focused solely on their own visual bonds.
And of course, not all municipal bonds are automatically exempt from Federal, state or local taxes, so check before you buy or invest. Also, be careful: some experts caution against too much investment in government bonds just to bait a dual status as an organization exempt from taxation.