Carty & Company, Inc.
Municipal bonds are debt obligations issued by states, cities, counties and other governmental entities, which use the money to build schools, highways, hospitals, sewer systems and many other projects for the public good.
When you purchase a municipal bond, you are lending money to a state or local government entity, which in turn promises to pay you a specified amount of interest (usually paid semiannually) and return the principal to you on a specific maturity date. Many bonds allow the issuer to call – or retire – all or a portion of the bonds at a premium, or at par, before maturity. When buying bonds, be sure to ask your investment representative about call provisions, and the difference between the yield to call and the yield to maturity.
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*If you are subject to the Alternative Minimum Tax (AMT), you may have to include interest income from certain municipal securities in calculating your income. There are different tax considerations when buying and selling bonds with gains and losses. Since tax laws frequently change, consult your tax lawyer or accountant for up-to-date advice.