An investor in a high federal income tax bracket is evaluating potential fixed-income investments. Which of the following statements accurately describes the tax treatment and structural credit backing of a municipal revenue bond?
- Interest income is generally exempt from federal income tax, and debt service is paid solely from revenues generated by the specific project or facility financed.Cevap
- BInterest income is exempt from state and local income taxes for all holders, regardless of whether the investor resides in the issuing state.
- CPrincipal and interest payments are backed by the full faith, credit, and general taxing power of the municipal issuer.
- DWhen prevailing market interest rates rise, the secondary market price of the revenue bond increases to match higher prevailing yields.
Cevap
Interest income is generally exempt from federal income tax, and debt service is paid solely from revenues generated by the specific project or facility financed.
The correct response accurately states that interest from municipal revenue bonds is typically exempt from federal income tax and that debt service payments are funded strictly by revenues produced by the project financed (such as toll roads, airports, or utilities).
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Anahtar Kavram
Municipal Revenue Bond Characteristics and Taxability