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Last Updated: 1/31/2017

Bond Interest from Another State or Local Government

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Interest earned on state or local government bonds is treated differently on your federal and Minnesota tax returns. For federal taxes, none of the interest is taxable. For Minnesota taxes, some of the interest may be taxable, depending on what state or local government issued the bonds.
 

On your federal return

Any interest earned on state and local bonds is exempt from federal income tax. You are required to report this interest on your federal return, but only for informational purposes. It is not included in your taxable income.
 

On your Minnesota return

Interest on bonds issued by state or local governments outside Minnesota is subject to Minnesota income tax. You must report (or “add back”) this interest as taxable income on your Minnesota return by completing Schedule M1M, Income Additions and Subtractions. This interest is taxable whether paid directly to you or as flow-through income from a partnership, S corporation, trust or estate.

Interest on bonds issued by the state of Minnesota or local governments in Minnesota is not subject to state income tax. Do not report this interest on your Minnesota return.

For more information, view the statute (M.S. 290.0131, subdivision 2) .
 

Federal bonds

Interest on federal bonds, such as U.S. savings bonds, is exempt from Minnesota income tax. For more information, view  Net Interest from U.S. Bonds Subtraction.