The National Directory of Certified Public Accountants

Ask A CPA - Interest Income

Municipal And State Interest

Municipal and state interest income is tax-free on your Federal tax return. Although you report it for informational purposes, it is not taxed. Municipal interest is also not included as income if the municipal instrument originates from the state you are filing. Out-of-state municipal bonds are not excluded on your state income tax return, only your Federal return.

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