Taxable municipal bonds are bonds issued by a municipality that do not carry the traditional tax benefits of regular municipal bonds. They are taxable because they are seen as not meeting the requirement of serving a public good that is required for a bond to be tax free.
Taxable municipal bonds fall into two categories:
- Build America Bonds which were only issued in 2009 and 2010 as part of a special economic stimulus package.
- Bonds which don’t qualify for a federal tax-exemption, such as bonds that fund pension funds, worker compensation funds, and bonds to support private economic activities.
Taxable municipal bonds share the very high quality credit characteristics of the municipal market in general, with the majority rated Aaa and only 1% being rated below investment grade.
For the definition and explanation of more bond related words visit the Learn Bonds glossary where we give the meaning of many additional terms.