What are the special tax features of (a) Treasury securities, (b) agency issues, and (c) municipal bonds?
(a): Treasury securities - Interest paid on all types of treasury securities will be fully taxable at the federal level but is tax free at the state and local level. Any profit or loss on treasury securities that has been traded must be reported by the investor as short term or long term capital gains or capital losses.
(b): Agency issues - They are issued by a government sponsored enterprise and most of the agency issues (but not all) are exempt from state and local taxes. Agency issues are not exempt at the federal tax level. Agency bonds which are purchased at discount will attract capital gains taxes on them.
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