A retail client living in Ohio purchases a municipal bond issued by the city of Miami, Florida. How are the coupon payments from this bond treated for federal and state income tax purposes?
- The interest is exempt from federal income tax but subject to Ohio state income tax.Cevap
- BThe interest is exempt from both federal and Ohio state income taxes.
- CThe interest is subject to federal income tax but exempt from Ohio state income tax.
- DThe interest is fully taxable at both the federal and state income tax levels.
Cevap
Interest from out-of-state municipal bonds is exempt from federal income tax but subject to state income tax in the investor's state of residence.
Interest earned on municipal bonds is exempt from federal income taxation. However, individual states typically tax interest earned on municipal debt issued by out-of-state entities while offering state tax exemptions on bonds issued by in-state municipalities. Consequently, an Ohio resident holding a Florida municipal bond pays no federal income tax on the coupon payments, but must report and pay Ohio state income tax on that interest.
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State Tax Treatment of Out-of-State Municipal Bond Interest
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