Definition

Noun: A tax-exempt security is a type of financial instrument, such as a bond, whose interest payments are not subject to certain levels of taxation, typically federal income tax and sometimes state or local taxes.

Usage

This term is used specifically in finance and investment contexts to describe securities that offer income free from taxation. It is a compound noun where "tax-exempt" modifies "security." * Investors seeking steady income without tax liability often purchase tax-exempt securities. * Municipal bonds are a common type of tax-exempt security.

Examples

• The city issued a to fund the new hospital, attracting many high-income investors.
• Her portfolio includes several to minimize her annual tax burden.
• Is the interest from this bond truly a , or is it only exempt from state taxes?

Advanced Usage

• The tax-exempt status typically applies only to the interest income, not necessarily to capital gains if the security is sold for a profit.
• "Tax-exempt security" is often used interchangeably with "tax-exempt bond," though a security can theoretically be other instruments.

Variants and Related Words

• Tax-Exempt (Adjective): Describing income or an entity not subject to tax.
  • Tax-exempt interest; a tax-exempt organization.
• Municipal Bond (Noun): A common specific type of tax-exempt security issued by state or local governments.
• Taxable Security (Noun): The direct opposite; a security whose income is subject to taxation.

Synonyms

• Tax-free security
• Tax-advantaged security (broader term)

Notes

This is a specialized financial term. The core concept is the exemption from tax on the investment's earnings, which makes it attractive to investors in higher tax brackets.

Noun

1. a security that is not subject to taxation