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While a fund may qualify as a tax-exempt mutual fund and be eligible to pass through its tax-exempt income to its shareholders, the fund may also generate some taxable income. This taxable income may include distributions of ordinary income such as from market discount, short-term capital gains, and/or long-term capital gains, all of which would be subject to the same type of tax treatment discussed on previous pages; however, such distributions generally will not be treated as qualified dividend income subject to reduced rates of taxation.
Dividends that are exempt from federal income tax may or may not be exempt under the laws of a particular state or local authority. Generally, however, income from bonds issued by municipalities in a particular state is not taxable in that state. We recommend that you consult your tax advisor regarding laws in your state.
Exempt interest dividends paid by a mutual fund (reported on your year-end fund statement and in box 8 of your 1099-INT) should be reported on line 8b (Tax-Exempt Interest) of Form 1040/Form 1040A and are taken into account when determining the taxable portion of Social Security or railroad retirement benefits.
For 2009, a percentage of the income paid to shareholders in many Delaware Investments® tax-free funds is subject to the federal AMT that applies to some investors. Please see the applicable Fund's prospectus for more information. Your tax advisor can provide more information on the AMT and determine whether this tax applies to you.
Interest on debt incurred by a shareholder to acquire, or to carry, an investment in a tax-exempt mutual fund will generally be nondeductible for federal income tax purposes. There is also a special rule that if a shareholder has held shares in a tax-exempt fund for six months or less and sustains a loss on the redemption of the shares, the loss will be disallowed to the extent of the amount of the tax-exempt dividends received.
In certain circumstances, interest on a tax-exempt security, as well as fund distributions derived from the interest, could become taxable. In such a case, the fund may be required to send you an amended Form 1099 in order to report additional taxable income that could require you to file amended federal and state income tax returns for such prior year to report and pay tax and interest on your pro rata share of the additional amount of taxable income.
Individual alternative minimum tax relief extended through 2009
The American Recovery and Reinvestment Act of 2009 increased the exemption amounts for the individual alternative minimum tax (AMT) through 2009. For tax year 2009, exemption amounts are as follows:
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$46,700 for unmarried taxpayers
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$70,950 for joint filers and surviving spouses
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$35,475 for married filing separately
The information contained in the Tax Center is not intended to be legal or tax advice. If you need assistance preparing your tax return, please consult a tax advisor.
Information may be abridged and therefore incomplete. Any discussion pertaining to taxes in this communication (including attachments) may be part of the promotion or marketing of a product. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
Investors should consider the investment objectives, risks and charges and expenses of a Fund carefully before investing. Each Fund's prospectus contains this and other important information about the Fund. Please request a prospectus by calling 800 523-1918 or by visiting the prospectuses & shareholder reports section of www.delawareinvestments.com. Read it carefully before investing or sending money.
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