Net Interest from U.S. Bonds Subtraction

Interest earned on certain U.S. bonds is subject to federal tax but is generally not subject to Minnesota tax. You may be able to subtract this interest from your Minnesota taxable income.

You may qualify 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:

• 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 federally taxable interest for the year you claim the subtraction

Note: You must reduce your subtraction amount by any deductions on your federal return for interest and investment expenses related to this income. For details and an example, see Expenses Related to Income Not Taxed by Minnesota.

To claim this subtraction, complete Schedule M1M, Income Additions and Subtractions, and include it with Form M1, Individual Income Tax.

For more information:

• See Minnesota Statute 290.01
• See Minnesota Rule 8002.0300, subpart 3