Municipal Bond Forum
On “Look Who Else Likes Munis”
Q
On Suze Orman’s affinity for zero coupon municipal bonds: What about the AMT taxes she faces? Perhaps her wealth is now so much that she can afford peace of mind. But I don’t get the zero coupon muni bonds. She has a negative cash outflow because she still must pay federal taxes on the capital gains the bond have each year. To my knowledge, the government looks upon the appreciation in value as a capital gain, not interest income. Hence, is it a taxable event?
A
James A. Klotz responds:
We don’t think you need to be concerned about Suze Orman’s taxes. Municipal zeros are not subject to federal income or capital gains taxes.
With $3 million to $5 million of W-2 income, she is unlikely to be subject to the Alternative Minimum Tax (AMT). If she is, she can invest in zeros that are not subject to the AMT.
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