What U.S. Government interest is deductible from Federal income?
• Interest from Direct Federal Obligations (such as Treasury Bonds & Notes) and other interest that is specifically exempt by Federal statute are not taxed by Georgia (including dividends received from mutual funds that derive income from these sources). Any amount exempted must be reduced by any direct and indirect interest expense attributable to the production of the interest or dividend income. To arrive at such reduction, the total interest expense is multiplied by a fraction, the numerator of which is the taxpayer’s average adjusted basis of U.S. obligations, and the denominator of which is the average adjusted basis of all assets of the taxpayer. The interest can not be from third party obligations such as Federal National Mortgage Association (F.N.M.A.), Government National Mortgage Association (G.N.M.A.), etc.
