How does the AMT affect muni bond investors?
Income from certain types of municipal bonds, such as private activity bonds, is sometimes included when calculating alternative minimum taxable income. So municipal bond investors who are subject to the AMT need to be aware of what types of bonds they’re purchasing and their potential tax implications. Private activity bonds are issued primarily to finance quasi-public projects, such as building stadiums and airports. Private activity bonds have typically offered higher interest income than other types of municipal bonds to compensate bondholders for not being fully tax exempt. While the interest earned from private activity bonds has been exempt from regular federal income taxes, it has been considered taxable income under the AMT. Because of this, private activity bonds have been called “AMT bonds.” Taxpayers have won a temporary reprieve. Under the American Recovery and Reinvestment Act of 2009, the interest earned from private activity bonds issued in 2009 and 2010 will not be sub
