This is an FYI for other doing Kentucky State with exempt interest income, and hopefully could help fix the bug...
Using 2022 TurboTax Premier, I got the prompt on Federal interview to indicated expect interest income, per the old post here - https://ttlc.intuit.com/community/business-taxes/discussion/how-to-add-exempt-interest-on-kentucky-schedule-m-on-line-8-as-a-subtraction-from-federal-adjusted/00/1258582#M42568
No problem with that.
However, when I completed the Kentucky interview, Schedule M for Federal AGI Modifications had not been created. Thus the Sched M line 1 for "Enter Interest income from bonds issued by other states and their political subdivisions" was never populated and added back into my income for Kentucky.
If I had filed my KY State return without manually finding and completing Schedule M, I would have paid about $200 less than I actually owed, possibly triggering an audit!
Note that I have also created a return for my daughter who had income in a couple other states BEFORE I started my state interview... Could it be that the additional States being noted by TT messed up the program's Kentucky logic for my return?
AH - I see the issue. In the past I think the interview item was framed differently!
Currently it asks "Which state are you <shows total amount> of exempt interest-dividends from?
I had answered Kentucky. That is wrong because not ALL of the total is from Kentucky! I guess I interpreted it initially to to the effect of "what state doesn't tax the total".
The CORRECT selection in my case should have been "More than one state" I think this would have created the KY 740 schedule M.
ARGH! After correcting the selection it didn't prompt for a state and the portion of total for that state.
I had to then go manually into the Schedule B 1099-DIV form/worksheet associated with the activity, and find the "Tax-Exempt Interest Dividends State Allocation", and allot a portion to KY and the rest to XX (for all other states)!
THEN it showed up properly in KY 740 Sch M