Products & Their RisksQuestion 101 of 398
A municipal bond described as 'triple tax-exempt' provides interest that is free from:
a.Federal, capital gains, and estate taxes
b.Only state and local taxes
c.Federal income tax and the alternative minimum tax only
d.Federal, state, and local income taxes for residents of the issuing state
Explanation
'Triple tax-exempt' means the bond's interest escapes federal income tax as well as state and local income taxes, which typically applies when an investor lives in the state (and sometimes locality) issuing the bond. Capital gains from selling a muni are still taxable, so the exemption applies to interest, not to gains.
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