District Of Columbia Alters Treatment Of Municipal Bond Interest

Effective January 1, 2013, the District of Columbia will no longer exempt the income on municipal bonds issued by all municipalities. This change was originally slated to take effect January 1, 2012, but the tax was delayed one year in mid-2012. It remains to be seen whether the DC City Council will delay the tax again this year. If the new law is allowed to take effect, income from the following bonds will continue to be tax exempt for DC 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); and Bonds of other municipalities that were acquired by the taxpayer before January 1, 2013. Similar rules will apply for bonds owned by DC residents through mutual funds. Specifically, income from bonds purchased by the fund after December 31, 2012, that are not bonds issued by the District of Columbia, possessions...