Tax-Equivalent Bond Yields Calculator

Tax-Equivalent Bond Yields Calculator

Municipal bond interest is typically exempt from federal income tax and may also be free from state tax. Depending on your tax bracket, a tax-exempt municipal bond with a lower yield may offer a higher after-tax return than a higher yielding taxable bond.

If you enter the yield for a taxable bond, this calculator will calculate the yield that a tax-exempt bond would have to earn to be equivalent to the yield of the taxable bond. If you enter the yield for a tax-exempt bond, this calculator will calculate the yield that a taxable bond would have to earn to be equivalent to the yield of the tax-exempt bond.

Is the bond yield you are entering taxable or tax exempt?
Enter the yield on the bond [0% to 10%]	%

Federal income tax rate

Choose your state of residence and associated tax rate
Select "Other" if you wish to enter a different tax rate below.
Or enter a different tax rate [0% to 15%]	%
Is the tax-exempt bond exempt from state income tax?
Select "No" if the tax-exempt bond is subject to tax in your state (for example, if a municipal bond from another state is subject to tax in your state).

Factor in deductibility of state income tax on your federal income tax return?

Taxable bond yields are subject to both the federal and state income tax rates entered above, and possibly the 3.8% Medicare contribution tax on net investment income (also referred to as the net investment income tax). Tax-exempt bond yields are tax-exempt for federal tax purposes (including the 3.8% Medicare contribution tax), but may be subject to state income tax (depending on the inputs selected above).

For taxable bonds, when factoring in the deduction of state income taxes on your federal income tax return, the deduction reduces both the federal income tax rate and the 3.8% Medicare contribution tax rate on net investment income. When factoring in the deduction of state income taxes for tax-exempt bonds that are subject to state income tax, the state income tax rate is effectively reduced by the federal income tax deduction (but not by the 3.8% Medicare contribution tax). Individuals who itemize deductions on IRS Form 1040 Schedule A are generally able to claim a deduction of up to $10,000 ($5,000 if married filing a separate return) for state and local property taxes and state and local income taxes (or sales taxes in lieu of income).