60

"Can't declare bankruptcy" isn't the same as "can't default". Bankruptcy is a specific legal process for discharging or restructuring debts. If Illinois can't declare bankruptcy, that means it will still owe you the money for the bonds no matter what, but it doesn't guarantee that it will actually pay you what it owes. If Illinois should run out of money ...


36

If Illinois cannot go bankruptcy This is missing a few, very important words, "...under current law." The United States changed the law so as to allow Puerto Rico to go into a form of bankruptcy. So you cannot rely on a lack of legal support for bankruptcy to protect any bond investments you might make in Illinois. It is entirely possible for the ...


19

In a lot of situations municipal bond returns are "triple tax free." No federal or state income tax and no AMT (Alternative Minimum Tax -- which is largely irrelevant at this point) liability. This tax preference is considered in the yields investors are willing to accept. Generally, you need to be in the upper most brackets for your real return in muni-...


13

If you give money to a person or entity, and they don't have the ability to pay you back, it doesn't matter if they are legally required to pay you.


11

Sovereign immunity is the state's ultimate "get out of bankruptcy free" card. After all, the state has a hand in defining what bankruptcy even is in their state. Federal law is a framework, states customize it from there. The state's simplest tactic is to simply not pay you. And leave you scrambling to the courthouse for redress. Is that an automatic ...


7

First, I would push back some on your premise. Yes investments add some complications to tax, but it needn't be much hassle. As long as you stick to the mainstream -- US-based retail funds, or "normal" stocks and bonds (and ETFs and UITs and such) through a domestic brokerage -- they'll keep the needed records for you. Practically all have done so as a "...


6

You're pretty much correct. But in question 2, a bond's yield is calculated based on its current market value. The price at which that particular bond last changed hands is irrelevant. If a particular bond issue is not widely enough traded to have a market value, then its yield becomes hard to calculate.


6

Quantitative easing is a general term that just refers to when a central bank decides to purchase financial assets from non-governmental institutions, as opposed to the usual policy of buying and selling government debt securities. Quantitative easing doesn't impose any legal framework on central banks that forbids them from buying municipal bonds; it's just ...


5

What could happen to bonds such as these because of Detroit filing for bankruptcy? Depending on how the courts process Detroit's situation, there could be that some bonds become worthless since they are so low and the city can't pay anything on those low priority debts. Others may get pennies on the dollar. There could also be the case that some bailout ...


5

Unless stated otherwise, these terms apply to all bonds. Par value vs purchase price The par value or face value of a bond refers to the value of the bond when it's redeemed at maturity. A bond with a par value of $10,000 simply means that if you purchase the bond and hold it until the maturity date specified in the contract, you receive $10,000. The ...


4

Yes as a very basic understanding that doesn't factor in callable options, convertible bonds to other securities, inflation-indexed bonds, zero coupon and savings bonds that would be other categories that exist. No, there is the question of when do you value a bond. For example, if you buy a long-term bond for $10,000 and half way to maturity it is worth ...


4

No, you will not. IRA distributions are taxed at ordinary income rates, and there's no sense in investing in tax-free investments inside the IRA. You can get corporate bonds with higher yields and the same level of risk. If you're talking about the distributions received by the IRA, not taking money out of the IRA, then you will not pay tax on any of them - ...


4

No. The hole in the plan is that not only is there some small risk in bonds (Orange County 1994?), but also bond issuers can and do refinance just like mortgage holders can when interest rates drop. Original answer: Whether or not there may be some investment opportunity that is sufficiently low risk and high yield to be worth mortgaging your primary ...


3

Anything else that I may be missing? I can't speak to municipal bond arbitrage, but this piece caught my eye: outgoing interest payments from mortgage pre-tax would be $10,000. Since mortgage is tax deductible at federal and state level, then post-tax it would be ~ $6,000 outgoing payment. Many people do not get full benefit from mortgage interest ...


3

The investor has $2000 capital loss. The dividends were recognized as income already, and as such are not affecting the basis. They're just not taxed.


3

The state of Illinois will likely call the bond if interest rates go down and they can sell a bond for, for example, 4 1/2% and use the proceeds to call or retire your bond. This has the benefit of reducing the state's annual interest expense. Since the US Federal Reserve has announced its intention to not lower, but raise interest rates, lower interest ...


3

Since the bondholders have voted to reject the emergency manager's plan, which would have paid them pennies on the dollar, the city is now attempting to discharge its short-term and long-term debt. If they get what they want in court, it is likely these bonds will become worthless. Even if they are only able to restructure the debt, its likely that ...


2

I found my answer here: Because buyers of premium municipal bonds do not pay taxes on coupon income, they do not receive any tax breaks on the amortization of the premium either.


2

A zero-coupon bond does not accrue, or pay, interest. Muni bond exemption only applies to interest, so if there is no interest there is no exemption. Are you perhaps thinking of Original Issue Discount (OID)? As a US taxpayer if you buy a (long-term) bond issued at a (non-minimal) discount from par value, you are required to treat a portion of that discount ...


2

Traditionally, this loan agreement (or bond between parties) was written down on a fancy piece of paper (similar to everyday money) showing the initial amount of the loan. As an addendum to the other answers, this isn't entirely accurate. The face value of the bond is the principal that the issuer agrees to pay off at the end of the bond term; there is ...


2

I am not sure which one is a good investment like state or federal bonds? They're both safe. Is it worth to Invest now? If for the long term, then yes, putting a portion (say 20%) of your investment fund in bonds is a good idea. Lets say1000$ roughly You're pretty much stuck with bond funds. so I can save some money from tax. Then you want ...


1

Municipal bonds have relatively low risk of default, since they are often backed by tax revenue or revenue from specific projects (e.g. a toll road), so their yield is usually similar regardless of the state/city/etc. that issues it. Historically they have run fairly close to federal bond yields of similar duration, but the COVID crisis has enhanced the risk ...


1

TLDR: net capital loss up to $3k, like all deductions, mostly reduces tax at the ordinary-income marginal rates, but not completely To get the correct result, you have to actually go through the complete process, because trying to compute each piece separately first and then add them won't work reliably. First off, I'll assume you are single (or possibly ...


1

If an investor sells a fund for a higher price than the purchase price, the sale may result capital gains taxes. The graph excludes this effect. Instead it assumes the investment is purchased and held. In addition, municipal bond interest counts for MAGI, which is an input for the taxation of Social Security benefits. This effect is also generally ...


1

From Wikipedia: A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds, rather than from a tax. Unlike general obligation bonds, only the revenues specified in the legal contract between the bond holder ...


1

Zero-coupon bonds that have a maturity date more than a year later are assumed to have earned interest anyway, and this imputed interest must be declared annually if the bond is held in a non-tax-advantaged portfolio. In a tax-advantaged portfolio (e.g. an IRA or a 401(k) plan), there is no such reporting requirement; the custodian can list the zero-coupon ...


1

Zero coupon bonds do not pay any interest, therefore there is no interest to report. They are sold at a deep discount, meaning you may much less that the face value. What they do report is the effective yield of the bond based on the discounted sale price. For example, you might pay $500 for a 10-year, zero-coupon bond advertised at a yield of 7.05%. So ...


1

There is no line on the 1040X for changing 8b because it isn't taxed directly. It's tax free. The only thing it is used for is determining the taxability of social security benefits. Rework the taxes with the updated 8b number. If any other values (taxable income or AGI, for example) change, then file a 1040X with the updated numbers that changed. If ...


1

Generally speaking, they probably are driven to the point of indifference once you correct for other variations in the instruments. If two different bonds had the same risk profile but different tax treatment then, ceteris paribus, they would be arbitraged to post-tax indifference. But munis behave in their own way, and generally one shouldn't equate those ...


1

Par Value: The "face value" of the bond, which will be paid at maturity. Purchase Price: The current market price to buy the bond (or the price at which you bought it) Call Date: The date on which the bond can be redeemed, prior to maturity, for a "Call Price" at the bond issuer's option. Differs from the "Maturity Date", which is the date at which the par ...


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