Q: Is the Accrued Market Discount of a matured US Treasury Note exempt from Alabama income tax?

A: Interest income from US Treasury securities, including notes, bonds, and bills, is generally exempt from state and local taxes. This means that if you're holding a US Treasury Note, the interest you earn from it is not subject to Alabama state income tax. However, the accrued market discount on a matured US Treasury Note refers to the increase in the value of the note from the time it was purchased to the time it matured, which is a bit different from interest income.

The tax treatment of the accrued market discount on federal securities can be complex and may depend on how you've reported it on your federal income tax return. For federal tax purposes, the accrued market discount is generally taxable as ordinary income. However, because the source of this income is a US Treasury security, the exemption from state income tax that applies to the interest might also extend to the accrued market discount, following the principle that income from these securities is exempt at the state level.

For a definitive answer on whether the accrued market discount of a matured US Treasury Note is exempt from Alabama income tax, it would be wise to consult with a tax advisor or the Alabama Department of Revenue. They can provide guidance based on the most current tax laws and regulations specific to Alabama. This way, you ensure that you're in compliance with state tax laws while taking advantage of any exemptions available to you.