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Taxes and zeros
Q
I’ve been reading up on zeros and taxes and such and have a question: With tax-exempt municipal zeros, are taxes due annually as zeros accrete, even though they are tax exempt? There seems to be some differing opinions about this.
A
James A. Klotz responds:
For the “phantom income” produced by taxable zero coupon bonds, taxes are due annually. Zero coupon munis, on the other hand, accrete free from federal taxation.
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