The interest income earned from most municipal bonds is exempt from all federal income taxes regardless of your tax bracket. This is the most significant benefit of municipal bonds and it is a characteristic unique to municipal bonds. Not even US Treasuries offer income that is free from federal income taxes.
Additionally, municipal bonds can be free of state income taxes as well. In most states, the interest income from municipal bonds issued by an issuer in the state is free from state income taxes in that state.
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