What is an AMT Free Municipal Bond Fund?

A diversified, credit–focused approach to municipal bond investing—without exposure to the Alternative Minimum Tax.

Are AMT municipal bonds exempt?

Even after April 15, investors who own certain types of municipal bonds should be aware of potential Alternate Minimum Tax (AMT) liabilities. The unique feature that sets municipal bonds apart from all other capital market securities is that the interest earned on them is exempt from federal income taxes.

Is muni bond income subject to AMT?

“Private activity” municipal bonds are subject to the federal alternative minimum tax. In 1986, the Tax Reform Act required that interest on private activity bonds (other than 501(c)(3) obligations) issued after August 7, 1986 be included in the calculation of AMT income for federal tax purposes.

How do tax-free municipal bond funds work?

Tax-free mutual funds invest only in municipal bonds. These funds use the combined monies of their investors to purchase bonds when they are issued. These bonds then pay interest periodically on the principal and return the full principal on a specified maturity date.

What muni bonds are subject to AMT?

What is alternative minimum taxable income?

What is alternative minimum tax (AMT)? The alternative minimum tax (AMT) is calculated using a different set of rules meant to ensure certain taxpayers pay at least a minimum amount of income tax. AMT calculations limit certain breaks for some taxpayers so their tax bill is higher.

Which bond is subject to AMT?

Private activity” municipal bonds
“Private activity” municipal bonds are subject to the federal alternative minimum tax. In 1986, the Tax Reform Act required that interest on private activity bonds (other than 501(c)(3) obligations) issued after August 7, 1986 be included in the calculation of AMT income for federal tax purposes.

Is it good to buy bonds when interest rates are low?

In low-interest rate environments, bonds may become less attractive to investors than other asset classes. Bonds, especially government-backed bonds, typically have lower yields, but these returns are more consistent and reliable over a number of years than stocks, making them appealing to some investors.

Is tax-exempt interest subject to AMT?

While exempt-interest dividends are not subject to federal income tax, they may still be subject to state income tax or the alternative minimum tax (AMT). The dividend income must be reported on the income tax return and it is reported by mutual funds on Form 1099-INT.

Do I pay taxes on municipal bond funds?

Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT).

Are AMT bonds taxable?

Regular taxpayers are not subject to taxation on their income from AMT bonds. (Non-AMT bonds are federally tax exempt regardless of the tax paying method utilized.)

How do I know if I have to pay the AMT?

To figure out whether you owe any additional tax under the Alternative Minimum Tax system, you need to fill out Form 6251. If the tax calculated on Form 6251 is higher than that calculated on your regular tax return, you have to pay the difference as AMT in addition to the regularly calculated income tax.

What is the best municipal bond mutual fund?

Here’s a look at some of the top municipal bond funds for 2018: the American High-Income Municipal Bond Fund (AMHIX), the Nuveen High Yield Municipal Bond Fund I (NHMRX), the Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX), the T. Rowe Price Maryland Tax-Free Bond Fund (MDXBX) and the Oppenheimer Rochester High Yield Municipal

What is a municipal bond mutual fund?

Municipal bond fund A mutual fund that invests in bonds issued by state, city, and/or local governments. The interest obtained from these bonds is passed through to shareholders and is generally free of federal (and sometimes state and local) income taxes. A mutual fund that invests predominantly or exclusively in municipal bonds.

What is a tax free bond fund?

Tax-free bond funds are mutual funds that tend to invest in municipal bonds. The mutual fund is configured to be tax free.