Practical Applications of The Tax Option in Municipal Bonds

Abstract

This article shows how investors can obtain superior results from tax-exempt municipal bonds through active management—as much as 20 to 30 basis points in additional annual return.

The Tax Option in Municipal Bonds explores how tax-loss harvesting can be applied to municipal bonds, and provides portfolio managers with a framework for determining how muni bonds perform under such a strategy.

“Muni bonds present unique opportunities for tax-loss harvesting,” says co-author Andrew Kalotay , President of Andrew Kalotay Associates , a bond analytics and advisory firm. The article, co-authored by Douglas Howard , Associate Professor at Baruch College in New York, quantifies the collective benefit accruing to investors from tax-loss harvesting over the life of a muni due to the volatility of interest rates.