Massachusetts Excludable Interest and Dividends
When filing your Massachusetts individual income tax return, certain types of interest and dividend income may be excluded from Massachusetts taxable income. These exclusions are based on the source of the income and specific Massachusetts tax rules.
Excludable Interest Income
- Interest from Massachusetts banks: Interest earned from banks located in Massachusetts is generally not included in Massachusetts taxable income.
- Interest from obligations of the Commonwealth of Massachusetts or its political subdivisions: This includes interest from state or local government bonds issued by Massachusetts or its municipalities.
- Exempt interest already reported on Schedule B, line 1: Any interest that is federally exempt (such as municipal bond interest) and already reported on Schedule B, line 1, is not included in Massachusetts taxable income.
Excludable Dividend Income
- Dividends taxed directly to Massachusetts estates or trusts: These are reported on a Massachusetts Fiduciary Return (Form 2) and are not included in the individual’s Form 1 income.
- Distributions that are returns of capital: These are not considered taxable dividends and are excluded from Massachusetts income.
- Dividends from partnerships, S corporations, grantor-type trusts, or non-Massachusetts estates/trusts: These are generally reported on Massachusetts Schedule E and may already be included in Schedule B, lines 1 and 2.
Additional Exclusions
- Interest from a trade or business reported on Massachusetts Schedule C: This is considered business income and is not included in the interest/dividend category for Massachusetts tax purposes.
- Interest and dividends from non-Massachusetts sources connected with business activity or ownership of real estate/tangible property in Massachusetts: These are considered Massachusetts-source income and are taxable.
Note: The above exclusions apply to individuals filing Form 1 (Massachusetts Resident Return) or Form 1-NRPY (Nonresident/Part-Year Resident Return). If you received interest or dividends from foreign corporations, you may need to complete Schedule FCI for additional reporting requirements.
Source:
Form 1 Instructions
Form 1-NRPY Instructions
Schedule FCI Instructions
Disclaimer: Always verify with the official forms and instructions published by the Massachusetts Department of Revenue. OLT (Online Taxes) provides guidance based on retrieved context but does not guarantee completeness or accuracy for individual tax situations.