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Treasury Regulations · 26 CFR

§ 1.35-1. Partially tax-exempt interest received by individuals.

In effect eCFR current as of October 15, 2026

Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).

Regulation under 26 U.S.C. § 35

Cite as 26 CFR § 1.35-1

At a glance

Read from the text and its source citation. Not part of the regulation.

Status
In the current eCFR
Source
T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960; T.D. 9989, 89 FR 17606, Mar. 11, 2024, unless otherwise noted.
Issued under
26 U.S.C. § 35
Length
333 words · about 1 min to read
Cross-references
cites 9 Code sections and 0 regulations; cited by 1
(a) The credit against tax under section 35 shall be allowed only to individuals and if the requirements of both paragraphs (1) and (2) of section 35(a) are met. Where the alternative tax on capital gains is imposed under section 1201(b), the taxable income for such taxable year is the taxable income as defined in section 63, which includes 50 percent of the excess of net long-term capital gain over net short-term capital loss.
(b) For the treatment of partially tax-exempt interest in the case of amounts not allocable to any beneficiary of an estate or trust, see section 642(a)(1), and for treatment of amounts allocable to a beneficiary, see sections 652 and 662. For treatment of partially tax-exempt interest received by a partnership, see section 702(a)(7). For treatment of such interest received by a common trust fund, see section 584(c)(2).
(c) The application of section 35 may be illustrated by the following example:
Example.

In his taxable year, 1955, A received $4,500 of partially tax-exempt interest. A's taxable income is $4,000 upon which the tax prior to any credits against tax is $840. His foreign tax credit under section 33 is $610, and his dividends received credit under section 34 is $120. A's credit under section 35 for partially tax-exempt interest is $110, determined as follows:

Section 35(a)
Partially tax-exempt interest$4,500
Credit computed under section 35(a); 3 percent of $4,500135
Section 35(b)(1)
Tax imposed by chapter 1840
Less:
Credit allowed under section 33$610
Credit allowed under section 34120
____$730
Limitation on credit under section 35(b)(1)110
Section 35(b)(2)
Taxable income4,000
Limitation on credit under section 35(b)(2); 3 percent of $4,000120

Since of the three figures ($135, $110, and $120), the lesser is $110, A's credit under section 35 is limited to $110.

Other regulations under § 35

Cross-references

Computed from the citations in the text of 26 CFR.

Code sections it cites

Cited by 1 other regulation

Where it sits in 26 CFR

  1. Subchapter A Income tax
  2. Part 1 Income taxes
  3. Credits allowable under sections 30 through 45D

Nearby sections