Interest from U.S. Government Obligations (code 71)
Interest or dividends earned on U. S. Government obligations or securities issued by the United States, or an agency, authority, commission, instrumentality, or possession of the United States is exempt from state income tax. These obligations include:
- Treasury bills;
- Treasury notes; and
- E, EE, H, HH, and I bonds.
The following income is NOT exempt from Utah income tax:
- Interest or dividends from the Federal National Mortgage Association (FNMA);
- Interest or dividends from the Government National Mortgage Association (GNMA); and
- Interest on IRS or other federal agency refunds.
The following conditions determine if the instrument qualifies as a U. S. Government obligation (see U.S. Supreme Court decision, Smith vs. Davis, 323 U.S. 111 (1944)). The instrument must:
- Be a written document;
- Bear interest;
- Contain a binding promise by the U. S. Government to pay a specific sum on a specific date; and
- Have congressional authorization to pledge the full faith and credit of the United States in support of the promise to pay.
Only interest or dividend income from U. S. Government obligations included in your federal adjusted gross income may be deducted from your Utah income. Before entering an amount, subtract any related interest expense on money borrowed to purchase the obligation or security.
The Tax Commission has provided Pub 33, Interest from U.S. Obligations to answer questions concerning this subtraction. This publication also contains detailed listings of which specific U.S. securities and obligations are and are not taxable.
Important Information: Interest earned on Utah municipal bonds is exempt from state income tax. Usually municipal bond interest is excluded from federal adjusted gross income (FAGI) and no action is necessary on the state return to exempt this income from Utah taxation. In certain situations, Utah municipal bond interest will be included in FAGI (ex. Build America Bonds, etc.). In these situations, the Utah municipal bond interest may be deducted from Utah taxable income using Code 71.
Enter the non-taxable subtraction on Utah TC-40A, Part 2, using code 71.
Keep all records and documentation to support this subtraction.