Even though the interest paid on municipal bonds is tax exempt, a holder can recognize capital gains or capital losses that are subject to federal income tax on the sale of such municipal bonds, just as in the case of a taxable bond. How to calculate municipal bond capital gains or losses?
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If tax exempt bonds are originally issued at a price less than par (as distinguished from a subsequent sale of a previously-issued bond), the difference between the issue price of such tax exempt bonds and the amount payable at the maturity of the bond is considered " original issue discount " ( or OID).
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What is a municipal bond premium? The municipal bond premium is the amount in excess of the face value or par value of the municipal bond that the bond investor purchases. When a municipal bond investor purchases a municipal bond at premium, he/she pays a higher price for the municipal bond than the par value or face value. Below are the tax implications and tax treatments of municipal bond premiums.
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What is market discount of municipal bonds? Market discount on municipal bonds or any tax exempt bonds can arise if the municipal bonds are issued at par or at a premium and is later purchased in the secondary market at a price that is less than par.
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