1. (1) Interest income and gains from the sale or disposal of United States obligations, which are exempted from state taxation by the United States Constitution, treaties, and statutes, are deductible from adjusted gross income. The deduction for such income shall be reduced by any interest on indebtedness incurred in carrying the United States obligation and by any other expense, including amortized bond premiums, deducted from gross income to arrive at adjusted gross income. The income from the following United States obligations is not subject to state income tax:

   1. (a) United States treasury bonds, notes, bills, and savings bonds.
   2. (b) Bonds, notes, debentures, and other obligations issued by:
   3. (i) Federal intermediate credit banks.

   4. (ii) Federal land banks.

      1. (iii) Federal home loan banks.
   5. (iv) Central banks for co-operatives.
   6. (v) Regional banks for co-operatives.

   7. (vi) Tennessee valley authority.

      1. (vii) United States postal service obligations.
2. (2) Interest on federal income tax refunds is not exempted from state taxation and shall not be claimed as a deduction.

History: 1979 AC.