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Types of Bonds

Gains and Losses

If you sell a municipal bond for a profit before it matures, you may generate capital gains. Long-term capital gains (which require a 12-month holding period) resulting from the sale of tax-exempt municipal bonds are currently taxed a maximum rate of 15%. Of course, if you sell your security for less than your original purchase price, you may incur a capital loss. Under current law, up to $3,000 of net capital losses can be used annually to reduce ordinary income. Capital losses can be used without limit to reduce capital gains. A municipal bond purchased at a premium or a discount and called or sold before maturity is subject to special rules. Since tax laws frequently change, consult with your tax lawyer or accountant for up-to-date advice.


All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.