Products & Their RisksQuestion 99 of 398
A primary tax advantage of most municipal bonds is that their interest is:
a.Generally exempt from federal income tax
b.Taxed at a reduced capital gains rate
c.Exempt from all state and local taxes for every investor
d.Fully deductible from the investor's gross income
Explanation
Interest on most municipal bonds is generally exempt from federal income tax, which is their principal tax benefit. Interest may also be exempt from state and local taxes for residents of the issuing state (potentially triple tax-exempt). This federal exemption makes munis especially attractive to investors in high tax brackets.
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