Taxable Municipal Bond

DEFINITION of 'Taxable Municipal Bond'

A fixed-income security issued by a local government such as a city or county or related agencies, the income from which is not exempt from tax. Taxable municipal bonds are generally issued to finance a project or activity that does not provide a major benefit to the public. In such cases, the federal government will not permit the tax-exemption that is a prominent feature of most municipal bonds.

BREAKING DOWN 'Taxable Municipal Bond'

Most municipal bonds are tax exempt. Since income from such non tax exempt bonds is taxable in the hands of the investor, they offer risk-adjusted yields that are comparable to those available from other taxable entities such as corporate bonds, rather than tax-exempt munis.


Examples of situations where taxable municipal bonds may be issued include financing local sports facilities or funding an under-funded municipal pension plan. Build America Bonds (BABs) are an example of taxable municipal bonds; they were created under the American Recovery and Reinvestment Act of 2009 and, although taxable, have special tax credits and federal subsidies for either the bond issuer or holder.

RELATED TERMS
  1. Municipal Bond Fund

    A mutual fund that invests in municipal bonds, or "munis." Municipal ...
  2. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  3. Fully Taxable Equivalent Yield

    The yield on a municipal bond, when the effect of reduced taxes ...
  4. Double Exempt

    The status accorded to municipal bonds for which interest is ...
  5. Tax-Exempt Sector

    The market niche comprised of investment vehicles exempt from ...
  6. Private Purpose Bond

    A type of municipal bond that is issued to finance a project ...
Related Articles
  1. Professionals

    Zero-Coupon and Municipal Bonds

    Zero-Coupon and Municipal Bonds
  2. Bonds & Fixed Income

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  3. Taxes

    Taxation Rules For Bond Investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  4. Bonds & Fixed Income

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  5. Mutual Funds & ETFs

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  6. 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.
  7. Bonds & Fixed Income

    Should You Consider Muni Bonds?

    Municipal bonds come in two types. General obligation bonds repay their holders through taxes. They often have low interest rates, but they’re safe.
  8. Professionals

    Municipal Bonds

    FINRA/NASAA Series 65: Section 8 Municipal Bonds. In this section calculation of taxable equivalent yield and general obligation and revenue bonds.
  9. Mutual Funds & ETFs

    4 Tax-Free Muni Bond ETFs to Consider

    Tax free municipal bond ETFs are an excellent way to build wealth slowly. Here are 4 you should consider.
  10. Bonds & Fixed Income

    The Top 5 Municipal Bond Funds for 2016

    Understand how the addition of municipal bond mutual funds can enhance a portfolio, and learn the top-rated municipal bond funds to consider for 2016.
RELATED FAQS
  1. How are municipal bonds taxed?

    Discover information about trading municipal bonds, specifically the various tax implications municipal bonds have at state ... Read Answer >>
  2. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
  3. 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 Answer >>
  4. How do the returns on municipal bonds compare to those of other bonds?

    Learn how tax-free municipal bonds may provide better returns than other types of bonds, and understand the risks of municipal ... Read Answer >>
  5. 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 Answer >>
  6. Who or what is backing municipal bonds?

    Learn about the basics of municipal bonds, including the various revenue sources that are utilized to back or secure municipal ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center