Which of the following accurately describes the tax treatment of municipal bonds?
A) All income from municipal bonds is tax free.
B) Interest is tax free, but unrealized capital gains are taxable.
C) Interest is tax free, but realized capital gains are taxable.
D) Interest is taxable, but capital gains are tax free.

Question

Quizplus · Accepted Answer

Interest income from municipal bonds is generally exempt from federal income tax, and in some cases, state and local taxes if the bondholder lives in the state where the bond was issued. However, realized capital gains from selling the bonds at a profit are subject to capital gains tax. Unrealized gains, or the increase in value of the bonds that are not sold, are not taxed.

Which of the Following Accurately Describes the Tax Treatment of Municipal