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Last Updated: 12/22/2017

Net Interest from U.S. Bonds Subtraction

Interest earned on certain U.S. bonds is subject to federal tax, but generally isn’t subject to Minnesota tax. This interest is subtracted from taxable income on your Minnesota schedule M1M (Schedule M1M Additions and Subtractions).

You may claim this subtraction if you report interest from qualifying U.S. bonds, bills, notes or other debt obligations. This includes interest you received through a partnership, S corporation or as a beneficiary of a trust.

To qualify, the bond or other obligation must meet all of the following requirements. It must:

  • Be a “direct and primary obligation” of the United States, and exempt from state tax under federal law.
  • Be in writing – with a promise to pay interest on specific dates – and authorized by Congress.
  • Pay interest that is taxable on your federal return for the year you claim the subtraction.

Note: You must reduce the subtraction amount to exclude any deductions on your federal return for “interest and investment expenses” related to this income.

For more information, see:

Minnesota Statutes 290.01
Minnesota Rules 8002.0300, subpart 3