Capital gains and losses on Muni bonds are treated exactly like capital gains and losses on any other securities.
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Capital Gains and Losses
Even though the interest paid on a municipal bond is tax-exempt, a
holder can recognize gain or loss that is subject to federal income tax
on the sale of such a bond, just as in the case of a taxable bond. The
amount of gain or loss is equal to the difference between
- the sale price of the bond and
- the holder's tax basis in the bond (the amount the holder paid for
the bond originally, including any additions to such basis, such as OID
as discussed in the following section).
- See more at:
http://www.investinginbonds.com/learnmore.asp?catid=8&subcatid=60#sthash.4yZ3tdc7.dpuf
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Tom Young
