Which of the following represents non-taxable interest?

The correct answer is interest from private activity bonds, as this type of interest is typically exempt from federal income tax. Private activity bonds are issued by or on behalf of a local or state government for specific purposes that benefit the public, such as funding infrastructure projects. The interest earned on these bonds is not subject to federal taxation, making it an attractive investment option for many individuals.

Interest on a below-market loan could potentially be taxable, particularly if it exceeds the market interest rates, as this could lead to imputed income. Interest on US Savings Bonds is usually subject to tax but may be tax-exempt if the bonds are used for qualified education expenses. Interest on refunded premiums is also generally taxable. Therefore, the nature of the interest from private activity bonds distinctly qualifies it as non-taxable at the federal level.