Tax Equivalent Yield — Muni vs Taxable
Tax-equiv = tax-free ÷ (1 − combined rate). Higher bracket = more muni benefit.
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Higher bracket = more benefit In-state double exempt Compare tax-equiv AMT watch
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Compare muni bonds vs taxable alternatives.
Estimates only — not tax advice. Tax laws vary by jurisdiction. Consult a CPA or tax professional.
💡 Money Facts
Tax-equiv = tax-free ÷ (1 − combined rate)
— Formula
37% bracket benefits most
— Tax
1. Key Takeaways
- • Higher bracket = more muni benefit
- • Tax-equivalent yield = tax-free ÷ (1 − combined rate)
- • In-state munis may have double tax benefit
- • Consider credit risk and liquidity
2. Did You Know?
Federal Tax-Free
Interest exempt from federal tax
State Tax-Free
Often exempt in issuing state
AMT Bonds
May not be fully tax-free
Credit Quality
Municipal default risk varies
High Bracket
37% bracket benefits most
Compare Yields
Use tax-equivalent to compare
3. How It Works
Combined Rate = Federal + State − (Federal × State). Tax-Equiv Yield = Tax-Free ÷ (1 − Combined). A 4% muni at 32% combined = 4% ÷ 0.68 ≈ 5.88% taxable equivalent.
4. Expert Tips
Compare apples to apples
Use tax-equivalent vs taxable yield
In-state munis
Double tax benefit in your state
Watch AMT
Some munis trigger AMT
Credit matters
Don't chase yield blindly
5. Comparison Table
| Tax-Free | 24% Bracket | 37% Bracket |
|---|---|---|
| 3% | 3.95% | 4.76% |
| 4% | 5.26% | 6.35% |
| 5% | 6.58% | 7.94% |
6. FAQ
When tax-equivalent yield exceeds taxable bond yield.
Usually taxable in your state. In-state often exempt.
Private-activity munis may be AMT preference.
7. Sources
- • IRS — Tax-Exempt Interest
- • Municipal Securities Rulemaking Board
8. Quick Stats
Federal
Tax-free
State
Often exempt
37%
Max benefit
Compare
Tax-equiv yield
9. Disclaimer
Disclaimer: Estimates only. Consult a financial advisor.
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