Tax-Exempt Interest

Tax-Exempt Interest

In the United States, interest on a bond not subject to federal taxes. Generally speaking, tax-exempt interest comes from a municipal bond. It is also important to tax-efficient funds because dividends on these funds coming from tax-exempt interest are also tax free. However, tax-exempt interest is required to be reported to the IRS and may affect one in other ways, notably on eligibility for Social Security benefits.
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For this purpose, "income" refers to modified adjusted gross income (MAGI), which equals the AGI reported on your tax return, plus any tax-exempt interest income.
Specifically, expanded income is AGI plus tax-exempt interest, nontaxable Social Security benefits, the foreign-earned income exclusion, and items of "tax preference" for alternative minimum tax (AMT) purposes less unreimbursed employee business expenses, moving expenses, investment interest expense to the extent it does not exceed investment income, and miscellaneous itemized deductions not subject to the 2-percent-of-AGI floor.
IRS officials say parents can elect to include their children's gross income, tax-exempt interest earnings and nontaxable Social Security income in the MAGI total.
The firm also failed to let customers know they were not receiving tax-exempt interest when the firm was short municipal securities.
Example 1: A complex trust has $120,000 of dividend income, $180,000 of tax-exempt interest, and $20,000 of tax preparation fees.
Taxpayers must report all tax-exempt interest on Form 1040 Schedule B, Interest and Ordinary Dividends, although the amounts are not included in taxable income.
The finance ministry has issued two new bonds for public and private social insurance funds at a tax-exempt interest rate of 9% at a total value of EGP 14.
Low Tax-Exempt Interest Rates--Highly advantageous financing is at an all-in construction rate of approximately 3.
Additionally, adjusted gross income excludes certain types of income that are not taxed--such as tax-exempt interest and nontaxable transfer payments, including Medicare, Medicaid, and welfare benefit payments--and it includes the taxable portion of social security benefit payments.
This type of proposal would include limiting the amount of interest taxpayers can exclude from their taxes, which would in effect make tax-exempt interest taxable.
Interest on certain categories of private purpose bonds is tax-exempt, although tax-exempt interest on some private activity bonds is a tax preference item for both the individual and corporate alternative minimum tax (see Q 7745, Q 7548).
Included in the person's total income is any tax-exempt interest income, excludable interest from United States savings bonds, and excludable income earned in a foreign country, United States possession, or Puerto Rico.