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Time For A Muni Makeover?

Take a closer look at municipal bonds.

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This story appears in the March 2007 issue of Entrepreneur. Subscribe »

If you bought municipal bonds for their tax-exempt status, it may be time to rethink them--or at least re-examine the fine print on the bond offering. For the increasing number of taxpayers subject to the Alternative Minimum Tax (AMT), the tax-free status of many munis--which is their main attraction--gets nullified.

In short, not all munis are created equal, explains Bob D. Scharin, RIA senior tax analyst at New York City's Thomson Tax & Accounting. "Some localities issue [qualified] private-activity bonds, which finance the activities of nongovernmental bodies," he says. "In those cases, the interest might be tax-free for regular tax purposes, but not for taxpayers subject to the AMT."

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