Singles & Couples: Muni-Bond Tax Breaks Disappearing–Maybe

Income Tax

What may become part of the “fiscal cliff” drop—and if not, it will be on the 2013 agenda—is the elimination of municipal-bond interest tax breaks. Muni-bond taxes help cover the costs of local utility services, community parks, and more. Currently, about $1 trillion dollars is invested in municipal bonds by individual investors.

In a recent Wall Street Journal report, President Barack Obama has expressed his interest in removing the tax break on bonds of high-income earners.
Who would be affected?

Singles earning $200,000+ annually
Couples earning $250,000+ annually

Although Americans enjoy the tax breaks, the government misses out on billions and billions of dollars annually. By removing the tax break, the federal government’s portion will go up significantly. The Wall Street Journal provided this chart to show that a forecasted $40 billion in revenue will be lost in 2015 if the current tax breaks stay intact:

fiscall cliff forecast
Muni-bonds have been very attractive to investors because interest income is exempt from federal income taxes and state taxes. If these tax breaks are removed, muni-bond holders will start eyeing new investment opportunities with lower taxes. The elimination of this potential tax break is one more thing to consider in year-end estate planning as 2012 draws to a close. Add it to your list of things to do by the New Year.


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