Yesterday I wrote a blog:
“Bonds are the worst investment.” Maybe. No.
They make sense when stocks are really hard. Like now.
I’ve got one stock, however.
I received an avalanche of emails telling me I was wrong. You don’t pay state and local taxes on the interest you receive from Treasuries.
Correct.
But, there’s a wrinkle:
Update on buying Treasuries — Tax implications
Interest paid by the Feds on Treasuries does not incur state or local taxes. Interest does incur Federal taxes.
When I buy Treasuries on Fidelity, I buy existing Treasuries that were issued a while back. I buy them at a discount. Today Fidelity may show a return of say 4.74%. That return is made up two “income” flows — the interest I receive and the appreciation.
I don’t pay state and local taxes on the interest I receive. I will pay it on the appreciation. That appreciation will be considered a capital gain.
Capital gains come in two varieties — short and long-term. Hence when buying a discounted Treasury it’s better to get a one-year (for example) that comes due just over one year — say a month or two over a year. Fidelity and other places you can buy Treasuries are loosey-goosey on their definitions of “one year.”
The Federal capital gains tax rate is 0%, 15% or 20% on most assets held for longer than a year. Capital gains taxes on assets held for a year or less correspond to ordinary income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
You’ll pay capital gains on a state and local level — if they levy income tax. Some states, like Florida, don’t.
A zero Treasury won’t pay any interest. You’ll get all your gain in appreciation. Hence you need to look at your own tax situation. My immediate thought is to go for zero Treasuries, thus switching all my gains to capital gains which are usually lower than ordinary income tax.
The moral of this story: If you’re buying a discounted “one year” Treasury, make sure it matures a month or so after a year. 13 months is good.
Yesterday’s blog
Yesterday’s blog had info on my brilliant X1 credit card, the latest on FTX and bitcoin, Life Tips, Generac and some great cartoons.
If you missed it, click here.
Today’s excitement
This is my office this morning. We’re trying to find the source of the leak.
We have underfloor radiant heating, which flows warm water under the floor. It’s really great when it works. When it doesn’t … well you get a flood, like we got in the basement.
Think of Where’s Waldo for adults.
— See you soon. — Harry Newton
