While the interest is not subject to income tax, it must be reported on your federal income tax return. If you collect Social Security benefits, the interest is taken into account in determining whether and to what extent the benefits are includible in gross income. And if any of the interest is on private activity bonds, the interest likely is taxable for alternative minimum tax purposes.
Increase in value of property due to market conditions. When you sell appreciated property, you pay tax on the appreciation since the date of purchase. When you donate appreciated property held long term, you may generally deduct the appreciated value.