No – Municipal bond interest is not taxable on your federal return and is not included in your adjusted gross income. However, capital gains realized from selling a bond are subject to federal and state taxes. Most states do not tax municipal bond interest.

Normally, municipal bonds are notably safe. General obligation bonds are backed by the taxing power of the governments that issue them, while revenue bonds are tied to specific revenue streams (think toll roads, for example). But during the COVID-19 outbreak, a lot of states and cities are losing out on revenue.

Investing in municipal bonds is a good way to preserve capital while generating interest. Most of them are exempt from federal taxes, and some are tax-free at the state and local level as well. Munis are often considered a separate asset class, so it pays to know the muni bond basics.

Corporate Bonds. Bonds used to fund local and state government projects like buildings and highways are afforded tax-exempt status at the federal level. Plus, people who purchase bonds issued by their states or localities may not be required to pay state or local taxes on the interest.

Income from investing in municipal bonds is generally exempt from Federal and state taxes for residents of the issuing state. While the interest income is tax-exempt, any capital gains distributed are taxable to the investor. Income for some investors may be subject to the Federal Alternative Minimum Tax (AMT).

The Bottom Line. If you are investing for income, either municipal bonds or money market funds will pay you interest. Just know that bonds can lose value and money market funds most likely won’t. Note also that since municipal bonds are income-tax free, you are actually making more than the interest rate would indicate …

Series 7 Municipal Bond Exam Overview Municipal bond topics typically comprise approximately 15 to 25 questions on the Series 7 exam, also known as the General Securities Representative Exam (GSRE), which is the test all stockbrokers must pass, to trade securities. 1  2  Municipal bonds fall under the following two broad categories:

One of the keys to passing the series 7 exam is to make sure that you have a complete understanding of how municipal bond underwriting will be tested on the Series 7 Exam. This article which was produced from material contained in our series 7 textbook and will help you master the material so that you pass the series 7 exam.

Orders for the purchase of municipal bonds are filled in a priority sequence specified in the syndicate’s priority allocation provisions, which are specified in the underwriting agreement and are provided to all syndicate members.

Prior to issuing any bonds, a municipal issuer must authorize the issuance of the bonds through a bond resolution and obtain a preliminary legal opinion. The bond resolution authorizes the sale of the bonds and describes the issuer’s obligations to the bondholders. The preliminary legal opinion helps to determine how the bonds may be offered.