Why would the irc exempt municipal bond interest from tax

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Question - Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year, he receives interest payments of $3,800. Jarret partially financed the purchase of the bonds by borrowing $100,000 at 5% interest. Jarret's interest payments on the loan this year are $4,900, and his principle payments are $1,100.

Why would the IRC exempt municipal bond interest from tax when it does not provide the same "grace" for corporate bond interest? Do you believe this disparity is fair?

Reference no: EM133020495

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