Yes it wipes out the benefit of state exemption for income tax but my question is if it is then a capital gain rather than income doesn't this provide an even greater benefit to investors in the highest tax brackets? For example me in Colorado would not get exemption from 4.4% state income tax. However, because my marginal federal income tax bracket is the highest (37%) and instead I am paying capital gains (20%) I am actually way better off with this treasury note bought on the secondary market and below par, that I held for over a year because it is now long term capital gain. The reason being I now pay 17% less taxes on the capital gain than I would have if it was treated as income (37-20=17). Is this correct?
Also much thanks for this chain. very informative
