It is commonly understood that muni bond taxation is favourable. Typically, an investor will not owe federal income tax on the dividends.
State income taxes will often be levied, but generally not when you are investing in municipal bonds from your own state of residence.
I suppose you could call that a 4th situation where your muni bonds are not tax-free: when you are investing in another state’s munis.
While the AMT mostly impacts high-income earners, taxpayers attempting to reduce their federal income taxes through various deductions typically impacted most because many deductions are added back in the AMT calculation.
If provisional income is at least $25,000 or $34,000 for single and joint taxpayers, respectively, then up to 50 percent of benefits are taxable, and up to 85 percent of benefits are taxable if provisional income is over $34,000 or $44,000 for single and joint taxpayers, respectively.
The tax treatment is as if the shareholder purchased the property from the corporation, and since an S Corporation is a pass-through entity, that tax treatment is passed along to the shareholder.