Triple-Tax-Free

AAA

DEFINITION of 'Triple-Tax-Free'

An investment (usually a municipal bond) featuring interest payments that are exempt from taxes at the municipal, state and federal levels. Also known as "triple tax-exempt".

INVESTOPEDIA EXPLAINS 'Triple-Tax-Free'

Municipal bonds often offer triple-tax-free interest payments to investors because the U.S. Constitution forbids the federal government from taxing interest earned on loans to municipalities and states. The state or municipality issuing the bonds makes the bonds tax-free to encourage investment, and the remaining state or municipality offers tax-free status to the issuer at its particular level of government as a courtesy.

However, tax-free status on earnings comes at a price to investors, as these bonds usually offer lower returns. This may or may not be made up to bondholders depending on the amount of income tax they pay: higher income earners will gain more from tax-free investments than lower income earners.

RELATED TERMS
  1. Franked Investment Income

    Income that is received as a tax-free distribution by one company ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Municipal Bond

    A debt security issued by a state, municipality or county to ...
  4. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
  5. Taxes

    An involuntary fee levied on corporations or individuals that ...
  6. Security

    A financial instrument that represents: an ownership position ...
Related Articles
  1. Bonds & Fixed Income

    The Basics Of Municipal Bonds

  2. Taxes

    Weighing The Tax Benefits Of Municipal ...

  3. Bonds & Fixed Income

    How long can I hold my HH/H Bonds and ...

  4. Bonds & Fixed Income

    How long will it take for a bond to ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center