Individual states within the United States often use bonds in funding important improvements to their infrastructures. New Jersey is one of these states that will offer their bonds for purchase by the public. Some of the major projects which need funding include the following: highways, city and county roads, bridges, airports, public transportation, schools, and many other enterprises.
The buyer of the bond can know the bond's interest rate by visiting the web site which is in connection with that specific bond issue. The interest rate will be set on the pricing date or dates. The fixed interest rates on these bonds are usually compounded and paid semiannually. However, those bonds or notes with a variable interest rate have interest rates which accrue at a rate which can periodically change depending on specific criteria, such as the influence of money market rates or a lender's cost of funds.
In purchasing a bond or bonds, the buyer is essentially lending money to the entity who is issuing the bond. These bonds are similar to a legitimate "I.O.U." that entitles the holder of the bond to receive interest payments during the life of the bond. When the bond matures (or becomes due), the issuer has promised to repay the face value (the principal) of the bond. The interest is usually paid in semiannual installments. If this interest is tax-exempt or tax free, the bond holder will not be required to pay federal income taxes or personal income tax where the state of New Jersey is concerned (according to the New Jersey State Gross Income Tax Act). These bonds then become NJ Tax Free Bonds.
The interest income from most NJ municipal bonds is tax-free from all federal income taxes regardless of the investor's tax bracket. This is indeed the most important benefit of these bonds. Another benefit of NJ Bonds is the exemption from state income taxes. This is true of the bond which is owned by the investor who lives within the state of New Jersey. Another tax exemption may include being exempted from city income taxes, as well. These bonds may also be exempt from AMT (alternative minimum tax), which is another great incentive for purchasing NJ Tax Free Bonds.