Interest Income from Obligations of Other States
North Carolina's individual income tax return may require an adjustment for interest received on notes and bonds. All taxpayers who received interest on notes and bonds from states other than North Carolina must add this interest income to the North Carolina return because this interest income has not been included on your federal return. Notes and bonds issued by Guam, Puerto Rico, and the U.S. Virgin Islands are not subject to this adjustment.
Mutual fund shareholders who receive exempt interest dividends on notes and bonds of other states must also make this adjustment. Unless you have a supporting statement from the mutual fund showing it is not taxable to North Carolina, you must add back all interest income which was exempt on your federal return.
Enter this amount on Form D-400 Schedule S, Part A – Additions to Federal Adjusted Gross Income, line 1. The total additions to federal adjusted gross income entered on Form D-400 Schedule S, line 4, also needs to be entered on Form D-400, line 7.
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