Question

Handling tax-exempt interest from various state bonds in TurboTax?

Forum|Forum|4 years ago
March 28, 2022
1 reply
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I have some state/local government issued bonds that are all giving tax exempt interest in terms of the federal return.

However, only a portion are issued by my state of residence (PA) and would be tax-exempt on my state taxes. I can't see any easy way to make this adjustment on the sate tax sections with the "EasyStep" process. The "adjustment" option doesn't do the right thing. Do I just need to move the interest to the taxable column on the actual form?

The broker isn't supported so I just entered the 1099-INT combined numbers by hand on the Federal return.

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ThomasM125

When you report the form 1099-INT in TurboTax and make an entry in Box 8 Tax-exempt interest, on the next screen you will be asked Tell us if any of these uncommon situations apply. One of the options is Our state doesn't tax all of this interest. You should check that box and you will be asked to indicate which state you are exempting. That is where you make the entry to exempt the interest income on your state tax return.

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pwolaninAuthor

Thanks, but that sounds like the opposite situation to what I have?

My state does tax some of the interest that is tax exempt in terms of the federal return.

Let me go back and check that screen.

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pwolaninAuthor

Indeed - that option for the federal 1099-INT only applies to a few states, PA is not one of them in any case.

And, again, it's exactly the opposite of what I need.

If I open the federal form on the 1099-INT I see a section for Tax-exempt Interest State Allocation. That seems like what I need? The EasyStep flow doesn't seem to provide for that.