Effective January 1, 2012, the District of Columbia will no longer exempt the income on municipal bonds issued by all municipalities. Income from the following bonds will continue to be tax exempt for D.C. tax purposes:
- Bonds issued by the District of Columbia or the Metropolitan Washington Regional Airport Authority
- Bonds issued by possessions of the United States (Puerto Rico, Guam, Virgin Islands, and American Samoa)
- Bonds of other municipalities that were acquired by the taxpayer before January 1, 2012
Similar rules will apply for bonds owned by D.C. residents through mutual funds. Specifically, income from bonds purchased by the fund after December 31, 2011, that are not bonds issued by the District of Columbia or the Metropolitan Regional Airport Authority, will be subject to D.C. income tax. Income from bonds issued by other municipalities that were purchased by the fund prior to January 1, 2012, will continue to be exempt from D.C. income tax, provided that that fund provides the taxpayer with substantiation of the amount of that income. If the fund fails to provide that information, only the income from bonds of the District of Columbia and the Metropolitan Regional Airport authority will be tax exempt.
This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.
