Posts Block - does not display taxonomy terms for CPT when using ACF registered taxonomies

[malalacharm]

Describe the bug
When adding the Posts Block with a custom post type and a custom taxonomy created using ACF, the block correctly queries posts and shows the taxonomy in the filter dropdown, but assigned taxonomy terms do not appear in the frontend, even when “Display taxonomy terms” is enabled.

• happens on editor
• happens on frontend

To Reproduce
Steps to reproduce the behavior:

1. Create a custom post type News using ACF
2. Create a custom taxonomy Categories attached to the CPT News using ACF
3. Add terms to the taxonomy (“Announcements”, “Updates”) and assign them to posts
4. Add a page with Posts Block, querying the News CPT
5. Enable Filter by taxonomy and add Announcements taxonomy terms in the Post block settings
6. Publish and view the page

Expected behavior
Posts should display the assigned taxonomy terms in the frontend.

Screenshots