Question

Which of the following statements is true?

A. Interest payments paid to U.S. Treasury bond holders are not taxed at the federal level.
B. Interest payments paid to corporate bond holders are not taxed at the federal level.
C. Interest payments paid to corporate bond holders are not taxed at the state level.
D. Interest payments paid to municipal bond holders are not taxed at the federal level, or by the state for which the bond is issued.

Answer 1

The correct statement is D. Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued.

Step-by-step explanation:

The correct statement is D. Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued. Municipal bonds are issued by state and local governments to finance public projects. The interest payments on these bonds are exempt from federal income tax.

Additionally, if the bond is issued by the state in which the holder resides, the interest payments are also exempt from state income tax. For example, if an individual holds a municipal bond issued by New York state, they would not have to pay federal income tax on the interest earned and they would also be exempt from paying New York state income tax on the interest.