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. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  2. Tax-Exempt Interest

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

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

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

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

    Any item or expenditure subtracted from gross income to reduce ...
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. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center