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

    A debt security issued by a state, municipality or county to ...
  2. Municipal Bond Fund

    A mutual fund that invests in municipal bonds, or "munis." Municipal ...
  3. Double Exempt

    The status accorded to municipal bonds for which interest is ...
  4. Private Purpose Bond

    A type of municipal bond that is issued to finance a project ...
  5. Mortgage Subsidy Bond

    One of the few types of municipal bonds ever issued that may ...
  6. Net Debt To Assessed Valuation

    In a municipal bond issue, a ratio measuring the value of the ...
Related Articles
  1. Investing

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  2. Investing

    Taxation Rules for Bond Investors

    Several factors affect the taxable interest that must be reported. Learn more here.
  3. Financial Advisor

    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.
  4. Investing

    Do Municipal Bond Mutual Funds Offer a Tax Incentive?

    Learn about individual municipal securities and municipal bond funds, whose principal stability and tax-free yield appeal to high-income investors.
  5. Investing

    What's a Tax-Efficient Investment for a Large Sum?

    Here's how to invest a large sum, such as assets from a profit-sharing plan, with a mind toward tax efficiency.
  6. Investing

    Think Twice Before Buying Tax-Free Municipal Bonds

    Municipal bonds are relatively safe, tax-exempt securities--but they are not without drawbacks. Due diligence is required.
  7. Investing

    The Basics Of Municipal Bonds

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

    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.
  9. Investing

    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. Investing

    Consider These Municipal Bond ETFs

    Though relatively low-risk, there are still some factors to consider when taking the plunge into municipal bond ETFs.
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 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 >>
  3. 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 >>
  4. 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 >>
  5. Your neighbor asks you about Municipal Bonds, you would be correct in telling him ...

    The correct answer is a): The two types of Municipal Bonds (Muni-Bonds) are general-obligation (GO) bonds and revenue bonds. ... Read Answer >>
Hot Definitions
  1. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  4. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  5. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  6. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
Trading Center