SIE practice questioneasyTreasury Securities — Taxation
Interest on U.S. Treasury securities is:
- ASubject to federal income tax but exempt from state and local income taxes✓ Correct answer
- BExempt from all federal, state, and local taxes
- CSubject to state and local taxes but exempt from federal income tax
- DSubject to all federal, state, and local income taxes
Explanation
Why A — Subject to federal income tax but exempt from state and local income taxes
U.S. Treasury securities interest is subject to federal income tax but exempt from state and local income taxes. This is the opposite of municipal bonds (exempt from federal, potentially exempt from state/local). This tax advantage makes Treasuries particularly attractive for investors in states with high income tax rates.
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