If you have a tax free investment (mutual fund or bond etc.)do yo uhave to pay taxes??and if you do on what?

Question

thank you

Answer 1

I am going to assume you are asking about interest income.

If you receive interest income that is exempt from federal taxes, that income is not added to your other income to figure your taxes.  However, you still must list that interest on your tax return (Schedule B).  Interest that is exempt from federal income taxes can change the federal income tax you owe by its effect on credits or deductions, or the tax on Social Security benefits.

Interest income that is exempt from federal taxes (such as municipal bond interest) is often taxed at the state level.  Conversely, interest income that is exempt from state taxes (such as treasury bond interest) is often taxed at the federal level.

Answer 2

federal free has to pay state income tax

State free has to pay federal

Answer 3

No, you don't have to pay federal tax on the interest from any truly tax-free investment like a municipal bond or a fund consisting of strictly municipal bonds.  You may or may not have to pay state tax on them depending on your state.  Some states don't tax them at all, some tax all of them, and some tax bonds from other states but not their own.

You may have appreciation on a bond - capital gains - if you buy the bond for $900 and sell it for $1000.  That gain is taxable whether or not it is municipal or not.

Savings bonds and other US Treasury issued bonds are taxable federally but never by states.