Municipal bond question
I have a client that in invested in a MI muni bond about 30 years ago(she lives in MI); she has reinvested dividends and capital gains. She now has accumulated a significant some of money in this account. My question is regarding the dividends – since she did not taken them as a distribution and let them accumulate are they taxable, if she would sell them in a lump sum or would they be tax free?
Also the capital gains in my understanding are taxable, can you please clarify that.
Permalink Submitted by Alan Spross on Thu, 2012-10-11 19:22
Yes, the cap gains are taxable on the federal return.
The reinvested dividends increase the basis in the bond fund when determining if there is a cap gain or loss upon sale. But the reinvested dividends are not taxable.
Permalink Submitted by Eric Woodfill on Thu, 2012-10-11 20:23
thank you