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Glossary/Tax-exempt interest

What is Tax-exempt interest?

In short

Interest on bonds issued by state and local governments is generally excluded from federal gross income.

Key takeaways

  • Interest on certain private activity bonds is a preference item for the alternative minimum tax.
  • Tax-exempt interest counts toward provisional income when taxing Social Security benefits.
  • Interest on money borrowed to buy tax-exempt bonds isn't deductible.

Where it's tested

REG: Individual Taxation: Gross Income — study notes, a five-minute revision sheet and practice questions.

Practise: 3 questions

Question 1 of 3 · 0 answered

Which of the following items is included in a taxpayer's federal gross income?

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