Tax-free funds and AMT

Tax-free funds and AMT

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. However, some states permit pass-through of tax-exempt income only if a fund meets certain threshold requirements with respect to the percentage of its assets invested in or exempt-interest dividends derived from tax-exempt obligations of the 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 11 (Exempt-interest income) of your 1099-DIV should be reported on line 2a (Tax-exempt interest) of Form 1040 and are taken into account when determining the taxable portion of Social Security or railroad retirement benefits.

A percentage of the income paid to shareholders in many Delaware Funds by Macquarie® tax-free funds may be subject to the federal alternative minimum tax (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 generally will 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 sale or redemption of the shares, the loss will be disallowed to the extent of the amount of the tax-exempt dividends received. However, this rule generally will not apply for losses incurred on shares of a tax-exempt fund that declares exempt interest dividends daily in an amount equal to at least 90% of its net tax-exempt interest and distributes them at least monthly and for which the taxpayer’s holding period began after December 22, 2010.

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, state, and local 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.

AMT exemption amounts for 2023

For 2023, individual alternative minimum tax exemption amounts are as follows:

  • $81,300 for unmarried taxpayers and head of household (not surviving spouse)
  • $126,500 for joint filers and surviving spouse
  • $63,250 for married filing separately

Investing involves risk, including the possible loss of principal.

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by visiting delawarefunds.com/literature or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

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. 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.