Question

How do I report interest on cashed EE bonds such that Turbotax recognizes that I am not to pay California state tax?

Forum|Forum|7 years ago
June 6, 2019
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TurboTax Deluxe Online

Employee

The savings bonds need to get entered in the Federal interest income section. The amount will be shown in Box 3-Savings bonds and treasury int. TurboTax will tax this on the Federal return, and then exempt it from taxes on the state return.

When you go through the State questions it may ask about it, but it is exempt from State taxes.

The interest that your savings bonds earn is subject to: federal income tax, but not to state or local income tax. any federal estate, gift, and excise taxes as well as any state estate or inheritance taxes.

R

ronmgee

Despite this answer saying that is exempt, it does NOT show up as a "Subtraction" on the CA (540) Adjustments form, which could result in much higher California taxes. Is this an error, TurboTax?

D

DIY_Taxes

This is true for Colorado also. The state tax forms subtract out the initial EE interest but do not account for the change in your tax bracket in effect taxing you on EE interest.

To prove this calculate your taxes with and without your EE bonds. You may need a significant amount of EE interest for this to show up.