Tax-exempt bonds are a type of municipal bond that is exempt from federal income tax. This makes them an attractive investment for individuals and organizations in high tax brackets. Tax-exempt bonds are typically issued by state and local governments to finance infrastructure projects, such as schools, roads, and hospitals. As of 2023, the total value of outstanding tax-exempt bonds is approximately $3.9 trillion.
There are a few things to keep in mind when investing in tax-exempt bonds. First, the interest rates on tax-exempt bonds are typically lower than the interest rates on taxable bonds. This is because investors are willing to accept a lower return in exchange for the tax benefits. Second, tax-exempt bonds are subject to state and local income taxes. However, in most cases, the federal income tax savings will outweigh the state and local income tax liability.
