New Mexico allows several deductions and exemptions that may reduce your taxable income. If any of the items below apply to you, complete Schedule PIT-ADJ and claim the deduction or exemption on your New Mexico return.
New Mexico Tax-Exempt Interest and Dividends
You may deduct interest or dividend income received from:
- State and local bonds exempt from New Mexico income tax, including bonds issued by the State of New Mexico and its agencies.
- Obligations issued by Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, or the Northern Mariana Islands.
- Federally taxable bonds issued by the State of New Mexico.
- Certain mutual funds, unit investment trusts, and simple trusts invested in qualifying New Mexico obligations.
Important: Interest and dividends earned inside an IRA do not qualify for this deduction.
New Mexico Net Operating Loss Carryforward
If you have an unused New Mexico net operating loss (NOL) from a prior year, you may carry it forward and deduct it from your current-year New Mexico taxable income.
All New Mexico NOLs must originate from a federal net operating loss.
Interest on U.S. Government Obligations
You may deduct interest earned from certain U.S. government obligations, including:
- U.S. Savings Bonds
- Treasury Bills
- Federal Home Loan Bank notes
- Your share of qualified U.S. government interest received through partnerships, S corporations, LLCs, or certain trusts
Railroad Retirement Benefits and Railroad Sick Pay
If taxable Railroad Retirement Act benefits or Railroad Unemployment Insurance Act sick pay were included in your federal taxable income, you may deduct those amounts because New Mexico does not tax them.
Income Earned by Certain Tribal Members
Income may be exempt if all of the following apply:
- You are an enrolled member of a federally recognized New Mexico Indian nation, tribe, or pueblo.
- You lived within the boundaries of your reservation, pueblo grant, or Indian country when the income was earned.
- The income was earned within those boundaries.
Note: Generally, income earned outside those boundaries remains taxable by New Mexico.
Income Exemption for Persons Age 100 or Older
You may qualify if:
- You or your spouse were age 100 or older by the end of the tax year.
- No one else can claim that individual as a dependent.
Important: You cannot claim both the centenarian exemption and the age 65-or-older/blind exemption.
New Mexico Medical Care Savings Account (NMMSA)
If you participated in a New Mexico Medical Care Savings Account and certain contributions, earnings, or distributions were included in federal income, you may qualify for an exemption.
Contributions to a New Mexico 529 Education Savings Plan
You may deduct contributions made during the year to a New Mexico-approved Section 529 education savings plan, including eligible rollovers from non-New Mexico 529 plans.
Net Capital Gains Deduction
You may deduct the greater of:
- Up to $2,500 of net capital gains, or
- 40% of up to $1,000,000 of qualifying net capital gain income from the sale of a business allocated or apportioned to New Mexico.
Military Active Duty Pay
Active duty pay earned in the U.S. Armed Forces and included in federal adjusted gross income may be deducted. This applies to both New Mexico residents and nonresidents.
Exemption for Persons Age 65 or Older, or Blind
You may qualify for an exemption of up to $8,000 per eligible person, depending on:
- Your filing status
- Your federal adjusted gross income
You cannot claim separate deductions for being both age 65 or older and blind. Only one exemption is allowed per person.
Medical Care Expense Exemption for Persons Age 65 or Older
You may claim a $3,000 exemption if:
- You or your spouse are age 65 or older, and
- You paid at least $28,000 in unreimbursed qualifying medical expenses during the tax year.
Organ Donation-Related Expenses
You may deduct up to $10,000 of unreimbursed expenses related to donating a human organ, including:
- Lost wages
- Travel expenses
- Lodging expenses
New Mexico National Guard Life Insurance Reimbursements
If you received a reimbursement from the New Mexico National Guard Service Member's Life Insurance Reimbursement Fund, you may deduct the amount of the reimbursement.
Taxable State Tax Refunds Included in Federal Income
If you were required to report a taxable state income tax refund, credit, or offset on your federal return, New Mexico allows a deduction for that amount.
Nonresident U.S. Public Health Service Active Duty Pay
Nonresidents of New Mexico may deduct active duty pay earned as a member of the U.S. Public Health Service while working in New Mexico.
Armed Forces Retirement Pay
Qualified armed forces retirees and certain surviving spouses may deduct up to $30,000 of eligible armed forces retirement income.
Social Security Income Exemption
You may exempt taxable Social Security income included in your federal adjusted gross income if your AGI does not exceed:
- $100,000 (Single)
- $75,000 (Married Filing Separately)
- $150,000 (Married Filing Jointly, Head of Household, or Qualifying Surviving Spouse)
Cannabis Business Expense Deduction
New Mexico allows licensed cannabis businesses to deduct expenses that would normally be deductible federally but are disallowed under Internal Revenue Code Section 280E.
Teacher School Supplies Deduction
Public school teachers may deduct up to $1,000 for qualifying classroom supplies purchased before January 1, 2029. Eligible expenses include items such as paper, notebooks, pencils, art supplies, maps, and rulers.
Where Do I Enter These Deductions?
To enter these deductions in the program:
- Go to the State section.
- Choose the three dots (Edit) option for the New Mexico return.
- Open Deductions from Income.
- Enter any deductions or exemptions for which you qualify.
Tip: New Mexico also offers additional exemptions for low- and middle-income taxpayers, certain dependents, and other credits that may be claimed elsewhere on the return and are not entered in the Deductions from Income section.
Additional Information
See instructions for PIT-ADJ