Which of the following is considered a tax-exempt income?

Municipal bonds are considered tax-exempt income because the interest earned from these bonds is typically not subject to federal income tax, and in some cases, may also be exempt from state and local taxes. This tax advantage makes municipal bonds an attractive option for investors, especially those in higher tax brackets, as it allows them to earn interest income without the burden of taxation.

The interest from other investment types, such as stocks, real estate investments, and corporate bonds, generally is subject to income tax. Stocks may pay dividends, which are taxed as income, while real estate can generate rental income that is also taxable. Corporate bonds typically offer interest payments that are fully taxable to investors. Therefore, municipal bonds stand out as a unique investment that provides a tax-efficient way to earn income.