The State Tax Deduction That Most Often Gets Missed

Most taxpayers know that interest from U.S. Treasury securities is taxable on the federal return. What many do not realize is that this income is generally exempt from state and local income tax.

The exemption can apply to:

• Interest received directly from Treasury bills, notes, and bonds.

• The portion of a mutual fund or money market fund dividend attributable to qualifying U.S. government obligations.

That second category is where the deduction most often gets missed.