Money Helps Can muni bond funds trigger the AMT?
By Judy Feldman

(MONEY Magazine) – Q. I've heard that some municipal bond funds can increase your odds of having to pay the alternative minimum tax (AMT). If that's true, what should I look out for? --Shirley Shen, 44, computer engineer, Louisville

A. What you've heard is true. One type of muni bond, known as a private-activity bond, is often used to fund activities like building stadiums. And yes, the interest from such bonds must be added to income when calculating taxes to see if you're due for the AMT. A fund prospectus gives the percentage invested in such bonds and a year-end statement includes a breakdown for AMT purposes. Most muni funds' exposure to such bonds is less than 20% of holdings, but if you're going to be hit with the AMT or are on the cusp, it's worth looking for a fund with low exposure--5% tops. The trade-off: slightly lower yields. --J.F.