SIE practice questionmediumMunicipal bonds
Interest received from most municipal bonds is:
- ATaxable at the state and local level everywhere
- BTaxable at the federal level
- CExempt from federal income tax✓ Correct answer
- DSubject to the alternative minimum tax (AMT) only
Explanation
Why C — Exempt from federal income tax
Most municipal bond interest is exempt from federal income tax, though there are exceptions, particularly with certain private activity bonds (which may be subject to AMT).
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