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 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 2012.
Similar rules will apply for bonds owned by DC 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 DC 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 DC 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.
For further information on this topic please contact Beth Kaufman, Lucy S Lee or Michael G Pfeifer at Caplin & Drysdale by telephone (+1 202 862 5000), fax (+1 202 429 3301) or email ([email protected], [email protected] or [email protected]).