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. Alternative Minimum Tax - AMT

    A tax calculation that adds certain tax preference items back ...
  2. Interest

    1. The charge for the privilege of borrowing money, typically ...
  3. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  4. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
  5. Municipal Bond

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

    An amount of money that a taxpayer is able to subtract from the ...
Related Articles
  1. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  2. The Basics Of Municipal Bonds
    Bonds & Fixed Income

    The Basics Of Municipal Bonds

  3. Avoid Tricky Tax Issues On Municipal ...
    Taxes

    Avoid Tricky Tax Issues On Municipal ...

  4. What is the difference between municipal ...
    Investing

    What is the difference between municipal ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center