Tax exempt interest in Arizona

Yes, you are correct. Government obligations are exempt so let's be careful entering them.

AZ instructions Line 28 states: Enter the amount of interest income from U.S. Government obligations included as income on your federal return. U.S. Government obligations include obligations such as savings bonds and treasury bills. 

You cannot deduct any interest or other related expenses incurred to purchase or carry the obligations. If such expenses are included in your Arizona gross income, you must reduce the subtraction by such expenses. If you are itemizing deductions on your Arizona return, you must exclude such expenses from the amount deducted.

Follow these steps:

1. Open your return to federal income.
2. Scroll down to the form containing the interest.
   • If the interest is on 1099-INT- it should be in box 3 and carrying to the state. 
   • If coming from a 1099-DIV and you have to select a box saying "A portion of these dividends is US Government interest"  from the follow up screen. Continue on to enter the nontaxable portion.

AZ instructions Line 28 states: Enter the amount of interest income from U.S. Government obligations included as income on your federal return. U.S. Government obligations include obligations such as savings bonds and treasury bills. 

You cannot deduct any interest or other related expenses incurred to purchase or carry the obligations. If such expenses are included in your Arizona gross income, you must reduce the subtraction by such expenses. If you are itemizing deductions on your Arizona return, you must exclude such expenses from the amount deducted.