Double Exempt

AAA

DEFINITION of 'Double Exempt'

The status accorded to municipal bonds for which interest is not subject to taxation at either the federal or state level. In general, most states do not tax residents on interest income arising from tax-exempt bonds issued by that state, its agencies, its cities or other political entities. However, virtually all states tax individuals on interest from bonds issued out-of-state, although those bonds remain exempt from federal taxes.

INVESTOPEDIA EXPLAINS 'Double Exempt'

Municipal bonds, including those for which the interest is not taxable at the state or local level, are attractive to taxpayers who wish to minimize or avoid taxes on their interest income. These securities often pay a commensurately lower interest rate than taxable issues such as corporate bonds, although depending on one's tax bracket and comparative yields, they may sometimes yield more on an after-tax basis. Double exempt bond income can be an AMT preference item in some cases.

From a tax perspective, this treatment often makes bonds issued in one's home state more attractive than those issued out-of-state. Some interest from municipal securities is also exempt from local income tax in jurisdictions where such taxes apply, technically making them triple tax-exempt.

RELATED TERMS
  1. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  2. Tax-Exempt Interest

    Interest income that is not subject to federal income tax. Tax-exempt ...
  3. Interest

    1. The charge for the privilege of borrowing money, typically ...
  4. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  5. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  6. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
RELATED FAQS
  1. What is the difference between municipal bonds and standard money market funds?

    The primary difference between municipal bonds - also known as "munis" - and money market funds is that municipal bonds are ... Read Full Answer >>
  2. What is the difference between the rule of 70 and the rule of 72?

    The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. ... Read Full Answer >>
  3. On what basis does the sustainable growth rate fluctuate?

    The main difference between a bond’s yield to maturity, or YTM, and the spot rate is that the YTM uses the same interest ... Read Full Answer >>
  4. What are some classes I can take to prepare for the Series 6 exam?

    The risk-return tradeoff for bonds is the increased yield investors can obtain from corporate and other types of bonds that ... Read Full Answer >>
  5. What level of return on equity is average for companies in the chemicals sector?

    The modified duration is an adjusted version of the Macaulay duration and takes into account how interest rate fluctuations ... Read Full Answer >>
  6. What is the average profit margin of a company in the chemicals sector?

    Macaulay duration and modified duration are used in fixed income markets to determine a bond's duration. The Macaulay duration ... Read Full Answer >>
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Bonds & Fixed Income

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  3. Taxes

    Avoid Tricky Tax Issues On Municipal Bonds

    Learn the rules every investor should know before buying into this "tax-free" investment.
  4. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  5. Mutual Funds & ETFs

    Why You May Want To Be (And Stay) In Bonds

    Bonds are complicated, and it’s easy to feel intimidated or confused. Fortunately, you don’t need to be a numbers geek to be an informed investor.
  6. Mutual Funds & ETFs

    How To Short The U.S. Bond Market

    The U.S. bond market has enjoyed a strong bull run over the past few years as the Federal Reserve has lowered interest rates to historic low levels.
  7. Investing

    Why Some Investors Are Tilting Toward TIPS

    Last month’s five-year TIPS auction drew nearly $48 billion in interest, a sign of recent renewed demand for this inflation indexed asset among investors.
  8. Mutual Funds & ETFs

    The EMAG Emerging Mkts Bond ETF: Worth the Risk?

    The Market Vectors Emerging Markets Aggregate Bond ETF (EMAG) might offer long-term rewards, but is now the best time to jump in?
  9. Mutual Funds & ETFs

    5 Dividend ETFs with Growth Potential

    A quick look at a few ETFs with substantial growth potential.
  10. Bonds & Fixed Income

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center