Lana earned interest from both a California municipal bond and an Arizona municipal bond. What is her taxable income for California tax that is not taxable federally?

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When considering the tax implications of municipal bond interest, it's essential to recognize that interest earned on bonds issued by states is generally exempt from federal income tax. However, the tax treatment can differ at the state level.

In this case, Lana earned interest from both a California municipal bond and an Arizona municipal bond. The key detail here is that interest from California municipal bonds is typically exempt from California state taxes, making it non-taxable. Conversely, interest from out-of-state municipal bonds, such as those from Arizona, is usually subject to California state taxes.

Thus, for California tax purposes, while Lana's interest from the California bond would contribute $0 to her taxable income, the interest earned from the Arizona bond would indeed contribute to her taxable income since California taxes out-of-state municipal bond interest. If the total interest earned from the Arizona bond was $30, that amount would be included in her California taxable income, resulting in $30 being the taxable income that is not taxable federally.

Therefore, the correct taxable income for California tax that is not subject to federal taxation reflects the interest from her Arizona municipal bond, aligning with the amount stated.