Municipal Bonds (Munis) are typically exempt from which type of taxes for in-state investors?

Municipal bonds, commonly referred to as "munis," are issued by state and local governments to fund public projects. One of the key benefits of these bonds is that the interest income earned by investors is typically exempt from federal taxes, which makes them particularly attractive to investors in higher tax brackets. Additionally, for in-state investors, the interest on municipal bonds is often exempt from state and local taxes as well.

This tax-exempt status for municipal bonds is designed to encourage investment in local infrastructure and projects. By providing tax incentives, governments can attract more investors, which ultimately helps fund essential services like schools, public transportation, and other community needs.

While other types of taxes, such as property taxes, may not be directly associated with the income from municipal bonds, the primary focus for in-state investors is the exemption from both federal and state taxes. This feature enhances the overall yield and attractiveness of municipal bonds compared to taxable investments, thereby making option A the most accurate choice.