Municipal bonds and tax-free income
Municipal bonds are issued by states, cities and other local bodies. Their main draw is tax: interest is often exempt from federal income tax, and sometimes from state tax for residents of the issuing state.
How munis are taxed
- Interest from most municipal bonds is free of federal income tax (Investor.gov).
- Bonds from your own state are often free of your state's tax as well; out-of-state munis usually are not.
- Some munis are subject to the alternative minimum tax, and gains on sale can be taxed.
When a muni pays more than a taxable bond
Compare the muni yield with a taxable yield after tax – the higher your tax bracket and your state's tax, the more a muni's exemption is worth. See the tax-equivalent yield guide for the formula.
Compare munis with everything else
IncomeGrid has 40,000+ investment options screened, including municipal bonds and muni funds, with risk levels 1–5. IncomeGrid ranks every item by yield after tax for where you live: federal, state and each investment type (Treasuries, municipal bonds, corporate bonds, funds, REITs and filed offerings are each taxed differently).
Compare municipal bonds after tax →
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