Mutual Exclusion Doctrine

AAA

DEFINITION of 'Mutual Exclusion Doctrine'

An agreement between federal and state and local taxing authorities mandating mutual exclusion in taxation of interest. The interest paid on any security issued by the federal government is not taxable at the state or local level. Conversely, any debt issued by state or local municipalities is free from federal taxation as well.

INVESTOPEDIA EXPLAINS 'Mutual Exclusion Doctrine'

This reciprocal agreement has been in place for decades. For this reason, high income taxpayers seek municipal issues for federal tax relief. The freedom from state and local taxes also makes interest from governmental issues more palatable for conservative investors living on fixed incomes.

RELATED TERMS
  1. Foreign Housing Exclusion And Deduction

    An allowance for taxpayers who live and work in a foreign country ...
  2. Government Bond

    A debt security issued by a government to support government ...
  3. Business Risk Exclusion

    A type of coverage that is often omitted from product liability ...
  4. Municipal Bond

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

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

    A debt investment in which an investor loans money to an entity ...
RELATED FAQS
  1. Where can I buy government bonds?

    The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to purchase ... Read Full Answer >>
  2. 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 >>
  3. What are common reasons for governments to implement tariffs?

    A tariff is a tax imposed by a governing authority on goods or services entering or leaving the country and is typically ... Read Full Answer >>
  4. What are some of the arguments in favor of a value-added tax (VAT)?

    A value-added tax (VAT) offers several advantages over an income tax or traditional sales tax. It raises needed government ... Read Full Answer >>
  5. How does a company derecognize a deferred tax liability?

    Under U.S. generally accepted accounting principles, or GAAP, deferred tax positions must be derecognized during the first ... Read Full Answer >>
  6. How is compound interest taxed?

    Compound interest is money that is earned and added to a principal balance and then earns additional interest. Adding interest ... 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. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  5. Mutual Funds & ETFs

    Pros and Cons: Preferred Stock ETFs vs. Bond ETFs

    A look at the differences between preferred stock ETFs and bond ETFs and when you should invest in one over the other.
  6. Taxes

    Tips on Charitable Contributions: Limits and Taxes

    An overview of the limits and tax deductions of charitable donations.
  7. Taxes

    When Is Dual Citizenship Not A Good Idea?

    It may sound useful, but there are a number of reasons that make dual citizenship a questionable choice.
  8. Bonds & Fixed Income

    Understanding Negative Rates Of Europe's Central Banks

    We are currently seeing negative central bank deposit rates and government and corporate bonds with negative yields, but there are investors buying into these securities. Why?
  9. Economics

    The Fed's Impact On Emerging Markets

    Higher US interest rates could make it more expensive for emerging market borrowers to service their debt commitments.
  10. Investing

    What’s The Essence Of Smart Beta In Fixed Income?

    In essence, smart beta strategies seek to re-write index rules to capture factors, such as value, quality, or low volatility, in their stock portfolios.

You May Also Like

Hot Definitions
  1. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  2. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  3. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  4. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  5. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  6. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
Trading Center