Tax Treatment of Municipal Securities

What this video covers

• Why home-state municipal bonds are triple tax-free but out-of-state bonds lose the state and local exemption, and why U.S. territory bonds break this rule entirely
• How premium amortization on municipal bonds reduces cost basis but is never tax deductible, because tax-free interest means no double dipping
• The who-done-it distinction between original issue discount (OID) created by the issuer and market discount created by secondary market trading, and why OID accretion is tax-exempt interest while market discount accretion is taxable ordinary income
• Why private activity bonds are alternative minimum tax (AMT) preference items while governmental bonds and 501(c)(3) bonds are not, and which private projects trigger this treatment
• What bank-qualified bonds are, why the $10 million issuer threshold matters, and why the 80% carrying cost deduction applies only to commercial banks not individual investors
• Why capital gains on municipal bonds are always taxable even though the interest is tax-exempt, and how the exam uses this as the ultimate trap