Lana earned interest from California and Arizona municipal bonds. How much is her taxable income for California that is not taxable on her Federal return?

When it comes to the taxation of municipal bonds, California has specific rules that can affect an individual's taxable income. Municipal bonds issued by California and its local governments are exempt from state income tax for California residents. This means that interest earned from California municipal bonds is not included in the taxable income for California state tax purposes.

In contrast, interest from municipal bonds issued by states outside of California, such as Arizona, is not exempt from California state taxes. Therefore, any interest earned on Arizona municipal bonds would be considered taxable income for California.

In this context, if Lana earned interest from both California and Arizona municipal bonds, she would need to correctly identify her taxable income based on the state tax treatment of each. Since she earned $30 from California municipal bonds—which are not taxable by California—and $100 from Arizona bonds—which are taxable by California—the total amount that would contribute to her California taxable income would be the interest from the Arizona bonds, making her taxable income $100. However, because she earns interest from California bonds which amounts to $30 that is not taxable, the total taxable income amount from these bonds that is specific to California would indeed be $30 from the Arizona bonds.

Thus, the focus on only the tax components for California leads to the conclusion