True or False QuestionTrue or false: Interest earned on certain state and municipal bonds is exempt from federal income tax.True false question.TrueFalse

Answer

True. Interest earned on certain state and municipal bonds is indeed exempt from federal income tax. This feature makes municipal bonds attractive to many investors, especially those in higher tax brackets. The exemption applies specifically to interest income derived from bonds issued by state and local governments to fund public projects. However, it is important to note that there may be exceptions, such as in the case of private activity bonds which may be subject to federal taxes under certain conditions. Additionally, while federal income tax may be exempt, state or local taxes on municipal bond interest may still apply, depending on the issuing jurisdiction. Therefore, investors should always consider their individual tax situations and consult with financial advisors when investing in such bonds.