While a BAB could draw a higher taxable financing cost to the issuer than a tax-exempt bond, the 35% federal government giveback turns it into a lower borrowing rate.

When issued in large amounts and structured differently than the typical municipal bond, these securities could attract nontraditional muni investors, such as pension funds and foreign governments. BAB bonds are giving investors the opportunity to diversify risk into an asset class which historically is very stable.

Bonds to fund municipal projects normally are sold in the tax-exempt arena. With the advent of the Build America Bonds, or BABs, the $2.7 trillion market for tax-free debt is expected to see less volume in the months ahead. That has boosted this market also, with prices of the highly rated, long-term muni bonds advancing almost 0.3 percentage point.

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Deductions You Want to Consider
Even though credits save you more than deductions, you still want to take deductions when you can.

Finally, exemptions are another area of tax breaks to know about. There is a personal exemption of up to $3,500 available to most taxpayers. If you’re lucky enough to work for an employer that offers Qualified Transportation Fringe Benefits, you also don’t have to pay income taxes on these benefits. Additionally, if you are in the military, any pay you received while serving in a combat zone in 2008 is exempt from income tax.

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