To arrive at Connecticut AGI, should federal AGI be increased by tax exempt interest and reduced by premium on tax exempt bonds? TT is doing that but is that proper?

Forum|Forum|5 years ago
March 21, 2021
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CT modifies federal AGI by adding tax exempt interest to federal AGI. But, Turbo Tax is only adding the excess of tax exempt interest over bond premium on tax exempt bonds (similar to the calculation on line 2a of Form 1040) to federal AGI to arrive at CT AGI. Is there an error in the software or is there something I need to do to ensure that federal AGI is increased by the full amount of tax exempt interest?

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JohnW152

The computation is correct.

Interest which federal law exempts from federal income tax but does not exempt from state income taxes is considered an addition to federal AGI on your state return.

Bond premiums on bonds that provide interest taxable in Connecticut, but exempt from federal income tax, are subtractions.

See Form CT-1040 Instructions Form CT-1040 Instructions for more information.

anacamuliAuthor

Is the bond premium a reduction only if the bond is acquired/held in the taxpayer's trade or business? If so, does Turbo Tax ask if the bond is held in the taxpayer's trade or business? Please see Conn. Agencies Regs. A sec. 12-701(A)(20)-3(a)(8).