Muni bonds are no longer tax exempt for high net worth clients?

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Aug 20, 2010 10:04 am

Someone just told me that munibonds are no longer tax exempt for hnw investors???? This true??? When did this happen??

Aug 20, 2010 10:16 am

nevermind... It was some idiot passing a joke around about what obama MAY do, not what's done already.

Aug 20, 2010 10:36 am

...and Obama is Muslim, and Bush caused 9/11, and the Pope was running the Kennedy administration....

Aug 20, 2010 2:41 pm

Yeah I know, it was some anti-obama-ite spreading false rumors, and some idiot was telling me adamantly this morning some "law" was changed overnight, that I apparently missed cause I didn't see the news.

Aug 20, 2010 11:02 pm

All right..sobered up today for those that sent me a pm.  Thanx for asking...

The story here seems partially true.  Look at the ratio of new issue muni's that are fed taxable because they are BAB bonds to the new issue of non-BAB's.  It is huge.  They are calling in all these bonds and replacing with BAB's.  Sure I picked up some nice ones for IRA's, but who benefits from this other than the IRS by getting to tax the interest and the municipality for the kickbacks they get for doing it? The only one I can see is the underwriters for all of the new issues.  Tell me what I am missing with this shrinking tax-free market.....

Aug 21, 2010 8:52 am

911? Those buildings were imploded!!!!

Clinton, Pelosi, Gore, and Reed,all born after New Mexico UFO crash!!!!!!

Aug 21, 2010 4:39 pm

[quote=Bud Fox]

All right..sobered up today for those that sent me a pm.  Thanx for asking...

The story here seems partially true.  Look at the ratio of new issue muni's that are fed taxable because they are BAB bonds to the new issue of non-BAB's.  It is huge.  They are calling in all these bonds and replacing with BAB's.  Sure I picked up some nice ones for IRA's, but who benefits from this other than the IRS by getting to tax the interest and the municipality for the kickbacks they get for doing it? The only one I can see is the underwriters for all of the new issues.  Tell me what I am missing with this shrinking tax-free market.....

[/quote]

It is not partially true.  There have been taxable muni bonds around for years before BAB's.  Remember people can choose which bonds to buy.  You would buy the tax free type for a taxable account and BAB's and other taxable muni's for IRA's.  One thing the BAB program is doing though is driving up the prices of the t/f muni's since taxes are going up and there is a smaller supply due to competition from taxable muni's.  Buy those muni's!!  I think it is likely that muni's outperform the stock market over the next 3 years.

Aug 21, 2010 8:34 pm

I agree with IAL.

The issuing of BABs over TF munis will exist until the 35% tax credit the IRS is paying the municipalities is more than they're making from taxing the interest received by the bond holder. The BAB program is stated to end January 1, 2011.

For it to make sense to buy TF over taxable, you generally need to be in the upper echelon of tax brackets. With TF munis on the decline, and BABs on the rise, you're forced to buy BAB due to a) the lack of supply of TF munis, and the TF munis which are still out there, the tax equivalent yield is lower than what you'd get on a BAB. And now you're paying taxes to the federal government. Clever way to raise taxes on the wealthy without explicitly raising federal tax backets ;)

Aug 21, 2010 8:36 pm

Unless of course your bond inventory is incredible and there's always an A rated or better 5% muni near par out there.

Aug 21, 2010 8:38 pm

Whoa


Talking about municipal bond inventories and tax equivalent yields... on a Saturday night

I'm leaving and going to go drink alcohol goodbye friends

Aug 21, 2010 9:45 pm

Already drunk...

Aug 21, 2010 11:33 pm

I guess someone needs a life...I need a shot of gasoline...I'm in room 16...

All comments here on the taxable vs. tax free's seem to be right on the mark.

Aug 23, 2010 4:41 pm

BAB's may not be around forever, which is why there is a push for municipalities to get some issued.  Get while the gettin's good.

Aug 24, 2010 2:21 am

it was some anti-obama-ite spreading false rumors, and some idiot was
telling me adamantly this morning some "law" was changed overnight, that
I apparently missed cause I didn't see the news.

Aug 26, 2010 10:39 am

[quote=BondGuy]

911? Those buildings were imploded!!!!

Clinton, Pelosi, Gore, and Reed,all born after New Mexico UFO crash!!!!!!

[/quote]

BondGuy, welcome to the conspiracy war!