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@tomis916 Tom - thank you for posting your work around for the issue with how TurboTax handles US Government Interest on the Colorado return. I had the same problem. Your workaround does work, though I modified it slightly by including John's suggestion, but the key is to put in 0 for the "Taxable Interest and Dividends" that are taxable in Colorado but not subject to federal tax. This was the critical step you figured out. Thank you!

@JohnW152  - please re-read Tom's posts. He (and I) are referring to US Government Interest as reported on a 1099-DIV - NOT - a 1099-INT. Your suggested fix does not work by itself.

I am using the downloaded version of TurboTax 2023. Here are few notes to expand upon Tom's reply.

In my case I have:

a) Interest reported on a 1099-DIV which is tax exempt from Federal Taxes because it comes from state bonds. This is reported in box 12 of my 1099-DIV. SOME (but not all) of this interest is taxable in Colorado.

b) I have other income (included in Box 1a of my 1099-DIV) which is from US Government sources. SOME (but not all) is exempt from taxation in Colorado.

Here's how I got everything to come out right:

1. On the FEDERAL return, when entering information from my 1099-DIV, I filled in all of the appropriate values from boxes 1a through 13. 

2. When asked "Tell us if any of these uncommon situations apply to you", I check the box that says "None of these apply to me" (Even though that is incorrect - do NOT check the box that says "A portion of these dividends is US Government Interest" - we'll fill that in on the State return, and it doesn't normally affect your Federal return, so you should be able to skip it here.)

3. Turbo Tax then prompts for what portion of the interest which is exempt from US taxes comes from which states. In my case, interest from Colorado is exempt, but interest from other states is not, so I have to break out how much of the US Tax Exempt Interest is also Tax Exempt in Colorado, and how much is not, by listing the income from Colorado on one line, and the total from all other states on the second line.

4. Finish Federal Return

5. In the Colorado State return, on the "Interest and Dividends from Mutual Funds" screen it should not pick up any values from the Federal return. (NOTE: If you entered a value for US Government Interest when filling out the 1099-DIV portion of the federal return, TurboTax will pick it up here, but you can't change it -- it assumes that 100% of the US Government Interest is tax exempt in Colorado, which is NOT necessarily true.) However, there are three lines that allow you add additional income from US Government Obligations that is not subject to Colorado Tax.  I put in the amount that is EXEMPT FROM TAX in Colorado. Only interest from US Treasuries, Savings Bonds, etc. is exempt. Interest from Mortgages (Fannie Mae and Ginnie Mae) is not. A full list is here: https://tax.colorado.gov/sites/tax/files/Income%2020.pdf

6. Enter any other US Government Interest on this screen if needed, but only if you didn't already enter it when doing the federal return

7. When you press "continue", TurboTax prompts you to "Enter interest and dividends from a mutual fund you received during 2023 that are taxable in Colorado but were not subject to federal income tax." For me, TurboTax automatically populated the non-Colorado bond interest I entered with filling out the 1099-DIV on the federal return. While this is the correct value, the only way to get the Colorado return to come out right is to enter 0 in this field. This is VERY counter-intuitive, and I consider this bug in TurboTax's Colorado module, but if you enter 0 here, the right number still shows up on line 7, form 104 as it should. (Note: I think the 2022 version and possibly older versions of TurboTax had the same bug -- I had this problem last year but didn't know how to fix it.)

Doing the above worked for me -- the US Government Interest exempt from Colorado tax shows up correctly on line 2 of form 104AD, and the taxable portion of the US Government Interest shows up on line 7 of form 104. This was the only way I could get TurboTax to fill out the forms correctly.