Listen to a Business English Dialogue About Limited tax bond
Elizabeth: Hi Ariana, have you heard about limited tax bonds?
Ariana: No, I haven’t. What are they?
Elizabeth: Limited tax bonds are municipal bonds issued by local governments that are backed by specific revenue sources, such as tolls or special assessments, rather than the general taxing authority of the municipality.
Ariana: Oh, I see. So, they’re bonds that are secured by dedicated revenue streams rather than the full faith and credit of the issuing municipality?
Elizabeth: Exactly. Limited tax bonds may offer higher yields than general obligation bonds but carry slightly higher risk due to their reliance on specific revenue sources.
Ariana: Are there different types of limited tax bonds?
Elizabeth: Yes, there are. Some common types include revenue bonds, special assessment bonds, and lease revenue bonds, each backed by different revenue streams.
Ariana: I see. So, investors need to assess the strength and stability of the revenue source when considering limited tax bonds?
Elizabeth: Yes, that’s important. Understanding the revenue source and associated risks is crucial for investors evaluating the creditworthiness of limited tax bonds.
Ariana: Are limited tax bonds subject to the same tax treatment as other municipal bonds?
Elizabeth: Yes, generally. Interest income from limited tax bonds is typically exempt from federal income tax and may also be exempt from state and local taxes if issued within the investor’s home state.
Ariana: I understand. So, they offer tax advantages similar to other municipal bonds?
Elizabeth: Yes, that’s correct. Limited tax bonds can be a tax-efficient investment option for investors seeking income while minimizing their tax liabilities.
Ariana: Thanks for explaining, Elizabeth.
Elizabeth: No problem, Ariana. Limited tax bonds can be a valuable addition to an investor’s portfolio, but it’s important to understand their unique characteristics and risks.