Tax-Exempt Bond Law and Legal Definition

Tax-exempt bond is a bond, issued by a municipal, county or state government, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax.

The following is an example of a federal statute defining tax-exempt bond:

According to 26 USCS § 150 (a) (6)[Title 26. Internal Revenue Code; Subtitle A. Income Taxes; Chapter 1. Normal Taxes and Surtaxes; Subchapter B. Computation of Taxable Income; Part IV. Tax Exemption Requirements for State and Local Bonds; Subpart C. Definitions and Special Rules], the term tax-exempt' means, “with respect to any bond (or issue), that the interest on such bond (or on the bonds issued as part of such issue) is excluded from gross income.”