Excludable forms of income Interest on state and local bonds Interest earned on bond issued by state or locality is untaxed(while interest earned on the bond of a private company is taxed) Investors are therefore willing to accept a lower before-tax rate of return on these bonds 1010 Excludable Forms of Income: Interest on State and Local Bonds • Interest earned on bond issued by state or locality is untaxed (while interest earned on the bond of a private company is taxed). • Investors are therefore willing to accept a lower before-tax rate of return on these bonds