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taxes and can be free of state taxes if bought in the investor's own state (But don't miss Tip #2 Below!). Such municipal bonds may even be tax exempt when it comes to personal property tax. Certainly, if you live in a high tax state, such an investment will be particularly advantageous.
Tax advantages are just one reason for taking a closer look at municipal bonds.Investors may be drawn to municipal bonds because of the relative safety of this kind of investment. Interestingly, investors may also be interested in the projects being financed for personal reasons or because those improved roads or schools may indirectly benefit their other business interests.

Just like with any investment, there are some basics that are important.
There are two categories of municipal bonds, both based on the type of collateral that is used to establish them. These two types are General Obligation bonds and Revenue Bonds. General Obligation bonds, with the appealing nickname of GO Bonds, are backed by the fact that city, county, or state has the advantage of being able to raise revenue through taxes.
Revenue municipal bonds are offered by an entity of the the city, county, or state government level. A utility company such as a water company is a good example of such a revenue municipal bond. That utility, that business, has an obligation to pay the interest and does so from the revenues that come in from the business. In this case, the income is generated as customers pay their water bills. The bond holders are paid from this revenue.

You will need to know how these tax free municipal bonds compare to other bond investments you may be looking at? There is a way to compare them. You will want to get the greatest after-tax return. The taxable equivalent yield formula will help you see which may be the best for you.
To calculate this information, you will need to know about Yield and will need to know your tax bracket (as a percent).

USING THE FORMULA-
What is the YIELD of the tax-free municipal bond you are considering? For our formula, let's say it's 5%.
What is your tax bracket? As an example if it is 15%, you calculate 1 - .15 = .85. We are going to use the .85 in our formula.
Next: Our YIELD divided by our .85 (representative of the 15% tax bracket), gives us:
.05 divided by .85 equals is 0.0588, which is 5.88%. If you can invest in a taxable bond with a YIELD better than this 5.88%, you should pursue that taxable bond. These numbers are used to illustrate how this formula works. Your

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