Tax-Exemption from State Income Taxes

Happily enough, municipal bonds can also be free of state income taxes. As a general rule in most states, if the bonds are issued in a particular state, it is exempt from that state's income taxes.

For instance, a bond issued by a municipality in New York will be exempt from New York state income taxes. Since there are 50 states plus D.C. and territories such as Puerto Rico, US Virgin Islands, Guam, it is not possible for us to go over examples involving each state. We'll go over some basic concepts and cover the taxation rules of most states.

First, having the benefit of not paying state income taxes on top of not having to pay federal income taxes increases the taxable-equivalent yield even more.

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