- The interest earned on fixed-income investments like bonds and notes is often subject to income tax.
- There are different taxation rules for government, corporate, and municipal bonds.
- While IRS tax form 1099-INT offers bondholders straightforward guidelines for declaring tax on income generated from the stated rate of interest, there are often complex factors that fixed-income investors must consider.are also taxable at the federal level but exempt from st
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The tax implications of investing in a bond depend on the specific type of fixed-income security you choose to invest in. Although you will owe federal taxes on income from government bonds such as Treasury bills and notes, your earnings are tax-free at the state and local levels.
Savings bonds allow you to defer federal taxes until maturity, and they are also state and local tax-free. Municipal bonds are usually tax-free at the federal, state, and local levels if you live in the issuing jurisdiction. Corporate bonds are taxable at all three levels, but given their higher risk, they also pay the highest interest rates. You will also have to pay capital gains taxes on any profits you make from reselling bonds on the secondary market.
ate and local taxes. This includes bonds from the Federal Home Loan Bank, Financing Corporation, and Tennessee Valley Authority, among others.
Taxation Rules for Bond Investors
1 min read
19 May 2023
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