NEW YORK ( TheStreet) -- In order to do an apples-to-apples comparison between the yield on a municipal bond and a taxable bond, you have to calculate *either* the taxable-equivalent yield of the muni bond *or* the after-tax yield of the taxable bond.

#### Calculating Taxable-Equivalent Yields

If your state does not levy an income tax, you're in luck. To calculate the taxable-equivalent yield of*any*muni bond, divide its yield by 1 minus your marginal federal tax rate. Yield / (1 - 31%) If your state levies an income tax, the same equation can be used to calculate the Treasury-equivalent yield of a muni bond issued in your state or the fully taxable-equivalent yield of a muni bond issued outside your state. How to calculate the fully taxable-equivalent yield of a muni bond issued in your state depends on whether you deduct your state tax payment on your federal return. If you do not deduct, divide the muni yield by 1 minus your federal rate minus your state rate. Yield / (1 - 31% - 6%) If you deduct, you use your effective state tax rate instead, which is your state rate times 1 minus your federal rate. Yield / (1 - 31% - (6% x (1 - 31%)) How to calculate the Treasury-equivalent yield of a muni bond issued outside your state also depends on whether you deduct your state tax payment on your federal return. But first you need to calculate the after-tax yield of the muni by multiplying it by 1 minus your state tax rate. If you don't deduct your state payment the equation is (muni yield x (1 - 6%)) / (1 - 31%) If you deduct it becomes (muni yield x (1 - (6% * (1 - 31%)) / (1 - 31%)

#### Calculating After-Tax Yields

The after-tax yield on a Treasury is obtained by multiplying its yield by 1 minus your federal tax rate. Yield x (1 - 31%) The after-tax yield on a fully taxable bond depends on whether you take that state income tax deduction. If you do not take the deduction, multiply the yield by 1 minus your federal rate minus your state rate. Yield x (1 - 31% - 6%) If you deduct, you use your effective state tax rate instead, which is your state rate times 1 minus your federal rate. Yield x (1 - 31% - (6% x (1 - 31%))**RELATED STORIES:**