Interest from Utah Municipal and U.S. Government Obligations (code 71)

Utah Code §59-10-114(2)(a)

Utah Municipal Obligations

Interest earned on Utah municipal bonds is exempt from Utah income tax. Usually municipal bond interest is excluded from federal adjusted gross income. In these cases, no action is necessary on your Utah return to benefit from the exemption.

In certain situations, Utah municipal bond interest will be included in FAGI, (e.g, Build America Bonds, etc.). In these cases, deduct Utah municipal bond interest from Utah taxable income. Enter the non-taxable subtraction on TC-40A, Part 2, using code 71.

Keep all records and documentation to support this subtraction.

U.S. Government Obligations

Interest or dividends earned on U. S. Government obligations or securities issued by the United States is exempt from Utah 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:

  1. Be a written document;
  2. Bear interest;
  3. Contain a binding promise by the U. S. Government to pay a specific sum on a specific date; and
  4. Have congressional authorization to pledge the full faith and credit of the United States in support of the promise to pay.

You may only deduct interest or dividend income from U. S. Government obligations included in your federal adjusted gross income. Before entering an amount, subtract any related interest expense on money borrowed to purchase the obligation or security.

See Pub 33, Interest from U.S. Government Obligations.

Keep all records, forms and worksheets to support this subtraction.