Bond Yields: What's Taxable, What's Not

Comparing taxable and tax-free yields involves making sure you understand a bond's tax status. The interest on corporate bonds is taxable by local, state, and federal governments. However, interest on bonds issued by state and local governments--generically called municipal bonds, or munis--generally is exempt from federal income tax. If you live in the state in which a specific muni is issued, it may also be tax free at the state or local level.

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