Your customer has T-bonds and wants to know how taxes work for them. You explain that:

The interest from Treasury bonds (T-bonds) is indeed exempt from state and local taxes. This is a key feature that makes T-bonds attractive to many investors, as it can enhance their after-tax return compared to other types of bonds that may be subject to state and local taxation.

At the federal level, however, T-bond interest is fully taxable. This means that while investors benefit from the tax exemption at the state and local levels, they still need to report and pay taxes on the earned interest when filing their federal income tax returns.

Understanding the tax implications of T-bonds helps customers make informed decisions about their investment portfolios, considering how different tax treatments can affect their overall returns.