Recommendations & StrategiesQuestion 70 of 100
An investor is subject to the alternative minimum tax and holds private-activity municipal bonds. The adviser should note that interest on certain private-activity bonds may be:
a.A preference item includable for AMT purposes
b.Always fully tax-free under all circumstances
c.Taxed as a capital gain
d.Exempt from all federal reporting
Explanation
Interest on certain private-activity municipal bonds is a tax-preference item that can be added back for alternative minimum tax purposes, reducing its benefit for AMT-affected clients. General obligation municipal interest is typically not an AMT preference. Tax status must be evaluated per client.
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