Federal agency securities are taxable at which levels?

Federal agency securities, such as those issued by government-sponsored enterprises like Fannie Mae or Freddie Mac, typically have specific tax implications. The correct choice indicates that these securities are subject to taxation at all levels: federal, state, and local.

At the federal level, interest income generated from these securities is fully taxable. This means that investors must report this income on their federal tax returns and pay any applicable income taxes. Additionally, while some state and local taxes may allow for exemptions on certain types of government securities, federal agency securities do not enjoy such exemptions. This is because they do not fall under the category of state or local government bonds, which often have tax-exempt status.

Therefore, investors in federal agency securities must consider the tax ramifications at every level of government. This understanding is crucial for making informed investment decisions, as the entire income from these securities is taxable, impacting overall returns.