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If an investor is in a 34% marginal tax bracket and can purchase a municipal bond?

Posted by admin in Finance Monday, 2 May 2011 08:42 2 Comments

If an investor is in a 34% marginal tac bracket and can purchase a municpal bond paying 7.24%, what would the equivalent before tax return from a non-municpal bond have to be equate the two?.

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2 Comments

  1. 05/02/2011 09:36
    posted by Bob F

    7.24/.66 (because he keeps 66% of his income)

    So the answer is 10.97%

  2. 05/02/2011 09:44
    posted by hrblockerrolquinn

    Dear Kay: 10.97% is correct if the muni is also taxed in the state and in the local municipality. Remember the non-muni is taxed Federal State and local, while the muni can escape Fed., state and local if the muni is issued by the municipality where the tax payers lives and files his taxes.

    This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent