BUYING MUNICIPAL BONDS: A Commonsense Guide to Tax-Free Personal Investing

by John Andrew ‧ RELEASE DATE: Feb. 9, 1986

Municipal bonds rank with real estate among the investments whose fortunes were most affected by the Tax Reform Act of 1986. As one result, this otherwise savvy primer from a Wall Street Journal editor does not provide the whole story. Andrew offers a chatty but knowledgeable introduction to these securities whose pre-TRA appeal was largely attributable to the fact that their interest payments were exempt from federal (and frequently local) taxation. He reviews the many sorts of municipals outstanding, noting that there are only two basic types--general obligations (backed by an issuer's taxing powers) and revenue bonds (secured by income from a public facility). Covered as well are the market characteristics of municipals and the mechanics of making commitments, either directly or through mutual funds and unit investment trusts. Recalling some of the tax-exempt field's more dramatic defaults, Andrew reviews what's involved in evaluating municipal issuers' credit-worthiness. There's also excellent material on call protection, portfolio insurance, sinking funds, and yield calculations, plus rundowns on zero-coupon, variable-rate, and put municipals. Unfortunately, the text (which assumes a top individual rate of 35 percent and preservation of favorable treatment for capital gains) does not take into account the TRA's impact. For example, the Act provides that if an individual's tax liability for any year is less than 21 percent of total income (unearned as well as earned), then certain items which are normally exempt become taxable. These so-called ""preference"" items encompass the interest on municipals issued after August 1, 1986, for what lawmakers deem non-governmental purposes, e.g., housing and student loans. In the meantime, the supply/demand picture is clouded because a large number of state and local agencies rushed to market earlier this year to beat the public-purpose deadline. Tax-exempt municipals are one of the few shelters to survive tax reform. Their attractions, though, promise to be much different than those described by Andrew, and the marketplace could prove a risky proposition for the unbriefed.

Pub Date: Feb. 9, 1986

ISBN: N/A

Page Count: -

Publisher: Free Press/Macmillan

Review Posted Online: N/A

Kirkus Reviews Issue: Jan. 15, 1986

Categories: NONFICTION