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How to Escape State Taxes Without Leaving New York or California

Municipal bonds are a relatively safe investment with tax-free interest that gives them an advantage over other fixed-income assets.

A U-Haul van parked in San Diego, California.

A U-Haul van parked in San Diego, California.

Photographer: Bing Guan/Bloomberg

There’s an easy way to hide from high taxes in states like New York and California that doesn’t involve packing up a moving van to Florida or Texas. 

US municipal bonds are offering the highest yields in more than a decade after a record-breaking selloff this year. What makes them unique relative to other fixed-income securities like Treasuries, corporate bonds or even bank certificates of deposit is they usually pay interest that’s exempt from both state and federal taxes — a perk that can make a big difference.