Products & RisksQuestion 8 of 125
Interest paid on general obligation municipal bonds to a resident investor is generally:
a.Fully taxable at the federal, state, and local levels
b.Exempt from federal income tax and often exempt from state tax for in-state residents
c.Subject only to federal tax but exempt from all state tax nationwide
d.Taxed as a long-term capital gain
Explanation
Interest on municipal bonds is generally exempt from federal income tax, and is typically also exempt from state and local tax for residents of the issuing state (the 'triple tax-exempt' feature for in-state holders). This tax treatment is why municipal yields are compared on a taxable-equivalent basis.
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