Question

Interest income from treasury securities is ________________, and interest income from municipal bonds is always ________________. A. Taxable at the state level only; exempt from state taxes only

B. Taxable at the state level; taxed at the federal level
C. Taxable at federal level only; exempt from federal taxes
D. Exempt from federal taxes; exempt from all taxes

Answer 1

Interest income from treasury securities is taxable at the federal level only, while interest income from municipal bonds is always exempt from federal taxes. Hence, the correct answer is option 3.

Step-by-step explanation:

Interest income from treasury securities is taxable at the federal level only, while interest income from municipal bonds is always exempt from federal taxes.

Treasury securities include bonds, bills, and notes issued by the U.S. government to fund its operations, while municipal bonds are debt securities issued by state and local governments.

For example, if an individual earns $1,000 in interest income from treasury securities, they will be required to pay federal taxes on that income. However, if they earn $1,000 in interest income from municipal bonds, they will not have to pay federal taxes on that income.