Tax Treatment of Municipal Securities
Chapters in this video
- 0:00 Muni tax basics and territory triple-exemption
- 2:02 Premium amortization: mandatory and not deductible
- 2:41 Market discount versus OID: the tax-free versus ordinary income split
- 3:22 The de minimis rule formula and the cliff trap
- 5:19 AMT triggers: private activity versus essential-purpose bonds
- 5:55 Build America bonds and bank qualified bond mechanics
- 7:41 Rapid-fire exam recap
What this video covers
- Why municipal bond interest is federally tax-exempt and how that drives lower nominal yields than comparable taxable bonds
- Which bonds are triple tax-exempt (federal, state, and local) in every state, and why U.S. territory bonds are the only munis with that status
- Why premium amortization on tax-exempt munis is mandatory and not deductible, and how that erases any capital loss at maturity
- How to calculate the de minimis threshold (0.25% multiplied by face value multiplied by years to maturity) and why exceeding it makes the entire discount ordinary income
- The critical distinction between original issue discount (OID), where accretion is treated as tax-free interest, and market discount, which is taxed as ordinary income
- Which municipal bonds trigger the alternative minimum tax (AMT): private activity bonds versus essential-purpose bonds
- What bank qualified bonds are, why the $10 million issuer cap matters, and who actually receives the 80% carrying cost deduction
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