What is the tax rate on corporate bonds?

If you sell it up to a year from purchase, the gains are taxed at your ordinary rate. If you sell it more than a year from purchase, your capital gains are considered long-term and are currently taxed at a maximum rate of 15%. Conversely, if you sell a bond for less than you paid, you may incur a capital loss.

Are municipal bond funds tax-free?

Municipal bonds are debt securities issued by a state, municipality, county, or special purpose district (such as a public school or airport) to finance capital expenditures. Municipal bond funds are exempt from federal tax and may also be exempt from state taxes.

What is the average rate of return on tax-free municipal bonds?

You have a choice between investing in general corporate bonds or tax-free municipal bonds. The corporate bonds yield 7%, and the tax-free municipal bonds yield 5%.

Are municipal bonds interest free?

The interest you receive from muni bonds is free from federal taxes but there may be state or local taxes or both. Beware: If you receive Social Security, your bond interest will be counted as income in calculating the taxable amount of your Social Security income.

How do you know if a municipal bond is taxable?

Although municipal bonds generally aren’t subject to federal taxes, the IRS does include income from such bonds in your modified adjusted gross income (MAGI) when determining how much of your Social Security benefit is taxable.

Which government bonds are tax free?

Tax-free bonds are issued by a government enterprise to raise funds for a particular purpose. One example of these bonds is the municipal bonds issued by municipal corporations. They offer a fixed interest rate and rarely default, hence are a low-risk investment avenue.