Civic · 6 pages · 12 min
Many municipal bonds are loans whose interest is excluded from federal income tax, which changes the borrowing.
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A municipal bond is a loan to a state or local government, and on many issues the interest paid to holders is excluded from federal gross income. That exclusion is a tax rule living inside the loan, because investors compare what they keep after tax and issuers borrow in a market shaped by that comparison. The opening covers the instrument is still a loan, federal exclusion shapes the interest, and some city bonds are taxable.
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