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. Fully Taxable Equivalent Yield

    The yield on a municipal bond, when the effect of reduced taxes ...
  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. Municipal Bond Arbitrage

    A strategy that consists of building a portfolio of tax-exempt ...
  6. Triple-Tax-Free

    An investment (usually a municipal bond) featuring interest payments ...
Related Articles
  1. 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.
  2. Financial Advisor

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  3. 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.
  4. Investing

    Foreign Investors Flock to U.S. Municipal Bonds

    Interest in U.S. municipal bonds by foreign investors is on the rise. Here's why.
  5. Investing

    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.
  6. 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.
  7. 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.
  8. 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.
  9. Investing

    How Are Zero-Coupon Municipal Bonds Taxed?

    What every investor needs to know about taxes and zero-coupon muni bonds.
  10. Investing

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
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. 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 >>
  3. What is a triple tax-free municipal bond?

    At its core, a triple tax-free municipal bond is just like any corporate bond: it is a debt instrument, a loan given to a ... Read Answer >>
  4. How stable are municipal bonds?

    Read about the safety and stability of the municipal bond market, and learn how that stability has been undermined since ... Read Answer >>
Hot Definitions
  1. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an ...
  2. Salvage Value

    The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting ...
  3. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  4. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
Trading Center