Interest Income from U.S. Obligations A taxpayer may take a deduction on the North Carolina income tax return for interest received from direct obligations of the United States to the extent this interest has already been included in federal taxable income or adjusted gross income, as appropriate. The State does not tax this income; therefore, this deduction will reduce North Carolina taxable income. The U.S. Supreme Court has listed four criteria that would exempt interest from state and local taxation based on the classification as interest from an obligation of the United States: Written documents; Interest bearing; Binding promise by the United States to pay specific amounts at specific dates; and Specific authorization by Congress U.S. Treasury bonds, notes, bills, certificates, and savings bonds are primary examples of this exception. In addition, the following are other current examples of issuers of bonds, notes or other direct obligations from which interest received is deducted from either federal taxable income or adjusted gross income , as appropriate: Guam, Puerto Rico, or Virgin Islands A Federal Land Bank A Federal Home Loan Bank A Farm Credit Bank Export-Import Bank of the United States Tennessee Valley Authority Banks for Cooperatives Production Credit Associations Commodity Credit Corporation Federal Deposit Insurance Corporation Federal Financing Bank General Insurance Fund United State Post Office Resolution Funding Corporation Financing Corporation (chartered by the Federal Housing Finance Agency) Previously, other agencies or entities that have subsequently been merged, dissolved, or changed the form of its operations issued obligations with interest payments that would qualify as a deduction. Examples include Federal Intermediate Banks, Farm Home Administration, Federal Savings and Loan Insurance Corporation, and Student Loan Marketing Association (prior to July 1, 2010). However, interest paid on obligations where the United States is merely an insurer or guarantor is not deductable from federal taxable income or adjusted gross income, as appropriate. Examples include Federal Home Loan Mortgage Corporation ("Freddie Mac"), Federal National Mortgage Association ("Fannie Mae"), and the Government National Mortgage Association ("Ginnie Mae"). You cannot deduct distributions from United States obligations representing gain from the sale or other disposition of the securities, or interest paid in connection with repurchase agreements issued by banks and savings and loan associations. This deduction does not apply to any portion of a distribution from an Individual Retirement Account (IRA).