In the Colorado state section of TT premier I find the instructions for the entry of “Interest and Dividends from Mutual Funds” to be incorrect or incomplete.
Short version: in the Colorado section of TT, under “Here’s the income that Colorado handles differently”, “Interest from US Govt sources”, the second window asks to “Enter interest and dividends from a mutual fund that are taxable in Colorado but were not subject to federal income tax”. I believe this is an incorrect prompt. It should be “Enter the interest and dividends from US government obligations that ARE taxable in Colorado”.
Example: I have some dividends from mutual funds (and ETFs) that are from US government sources. I’ll use $200 as an example. Some of these dividends are from FNMA which are taxable in Colorado. For this example, we assume $10 from FNMA.
I also have federal tax exempt dividends. In the federal section of TT, I entered the amount earned in each state. In this example we’ll assume $300 was from California.
In the Colorado section, Interest from US Govt sources (which appears either at the top under income Colorado handles differently or under Investments, below), the $200 value has been copied from the federal questionnaire. This is the total from US government sources, and includes the FNMA amount. The “Learn More” popup mentions that FNMA dividends are taxable in Colorado.
When I click on “Edit” the first window asks for interest from other US govt obligations that qualify for a Colorado subtraction. I have no such interest to report.
The next question (I’ll call it question X) asks “Enter interest and dividends from a mutual fund that are taxable in Colorado but were not subject to federal income tax”. I believe this question is incorrect. It suggests that one enters the federally tax exempt dividends that were from out-of-state municipal funds, $300 in my example. However, if one enters the out-of-state tax exempt dividends here (for a second time since they were entered in the federal questionnaire), then they are not treated correctly.
The FNMA dividends WERE subject to federal income tax, so they do not match this question. There is no question that matches these dividends, and this is the only place I can find in the Colorado section for me enter these FNMA dividends, so that they are ADDED to my Colorado income. If I enter the $10 FNMA dividends here, they appear correctly in the interest worksheet under “Less: US Treasury Int/Div from mutual funds not 100% exempt”, correctly reducing the US Government interest to $190, which is reported on form DR 0104AD, line 2 as a Colorado taxable income subtraction.
I believe question X needs to be rephrased: “Enter the interest and dividends from US government obligations that ARE taxable in Colorado”.
The $100 in tax exempt dividends from out-of-state is treated correctly from the federal questionnaire. It is ADDED to the Colorado income via the “Other Modifications to Federal Taxable Income Worksheet”.
