Choose the response that correctly completes the following sentence describing the tax treatment and reporting requirements for municipal bond interest. Interest income from this type of investment is:

-Federally taxable and must be reported on Form 1040.

-Nontaxable and does not have to be reported.

-Not federally taxable but must be reported on Form 1040.

-Not federally taxable and only reportable on Form 1040 when the amount received exceeds $1,500.