Municipal Bond Forum

Out-of-state munis for California resident

I’m a California resident paying a 12% state tax. Do you think it makes sense for me to buy municipal bonds from other states?
J.M., California

James A. Klotz responds:

As a California resident with a 12% state tax, buying out-of-state bonds can be extremely challenging, particularly if the new tax-reform proposal is enacted.

According to the terms of the bill, state and local income taxes will no longer be a deduction when calculating your federal income tax.

It will be extremely difficult, if not impossible, to find quality bonds issued from other states providing after-tax yields comparable to those of California issues.