Municipal bonds are issued by local or state governments to finance public projects. They are generally exempt from federal income tax and from state and local income tax in the state in which they are issued. However, some states may tax out-of-state municipal bonds. So, option C- generally exempt from federal taxes and most state and local taxes is the right choice.

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Municipal Bonds Are

Question 14

Multiple Choice

Municipal bonds are

A) generally taxable by federal and most state and local taxes.
B) generally taxable by federal taxes but exempt from most state and local taxes.
C) generally exempt from federal taxes and most state and local taxes.
D) generally exempt from federal taxes but taxable by state and local governments.

Correct Answer: