NY State Tax Treatment of Income From Treasury Bond ETFs/MFs

Forum|Forum|3 years ago
January 2, 2023
2 replies
10 views

I have a couple of Treasury bond ETFs/MFs (e.g., GOVT). Treasury bond interest is tax free at the state level, but I'm fairly sure the income from these funds will be reported by the brokerage as dividends on a 1099-DIV rather than on Line 3 of a 1099-INT. Assuming that's the case, is that income still NYS tax free? If yes, where in the NYS interview do enter the data that will appear on Line 28 of NY IT-201, or should I just enter it directly onto the form?

Thanks

Best answer by SteamTrain

The interview handles it in the course of the standard 1099-DIV entry, on the pages immediately after the main entries for that 1099-DIV form.

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Pictures below are from 2020, Desktop, and the "Online" software my look a bit different).

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After you indicate what part of the 1099-DIV $$ were from Govt Bond interest, then that amount will be transferred properly to the state forms to be used as needed (might not be 100% of box 1a, since boxes 1a,b may also include dividends from other things you hold at that brokerage...stocks too)). You do have to add up the proper $$ amount to put in there from whatever Supplemental information the brokerage sends you, or provides after year end.

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Anonymous_

Level 15

This has the potential to present issues with respect to state income tax liability for which you need to review the materials provided by the fund manager.

@Mike9241

jeffecohenAuthor

Level 4

@Anonymous_

You are correct. Treasury funds are NY (and, I assume, all states) tax free. Other bond funds may be as well, if they are "regulated investment companies" (most MFs are). A fund must hold a minimum of 50% "US obligations" assets to be NY tax free. There's a list of about 50 categories that indicates which of them qualify/don't qualify for that designation.

SteamTrain

Level 15

Very true. Each brokerage may have their own list, but I just checked Fidelity, and each year they publish a PDF file of each of their Mutual funds that had US Govt securities, and the % of the yearly distribution that was from US Govt bonds...

Then they put a "*" next to any fund where the % wasn't high enough to be used for "California, Connecticut, and New York" ... (so I suspect those 2 other states have the same limitations)

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*