Tax-Free Bonds: How They're Taxed, Who They're For, and How They Compare to Tax Lien Certificates
Tax-free bonds aren't always as tax-free as they sound. Municipal bonds skip federal income tax on interest — but capital gains are fully taxable, some bonds trigger the AMT, and out-of-state munis get taxed by most states. This guide breaks down exactly how each bond type is taxed, who they actually make sense for, and why most bond investors have never seriously looked at the alternative: tax lien certificates paying 8–36% annually, backed by the same government authority.