I live in California and have interest income from various CA muni bonds and US treasury and agency bonds that are exempt from state tax. They are reported on my 1099-INTs in:
Box 1 - Interest Income: most or all of this income are CA state tax exempt for me
Box 3 - Interest on U.S. Savings Bonds and Treas. Obligations: all are federal-taxable but state tax exempt
Box 8 - Tax-Exempt Interest: all are both federal and state tax exempt
I am under the understanding that for amounts entered in Box 3 and Box 8, TurboTax accounts for the tax exemption for my California state tax return, and so I don't need to manually make adjustments, whereas for amounts entered in Box 1, I need to manually make adjustments (because TurboTax doesn't know how much of it is state tax-exempt, unless it examines my interest details line-by-line for each of my 1099-INTs).
I would like to confirm if my above understanding is true. I paid for and called TurboTax's live tax advice line several times over the last 2 days and was given 3 conflicting answers: 1) Only Box 1 needs manual adjustment by me; 2) all 3 boxes need manual adjustment; and 3) none of the 3 boxes need manual adjustment - all of those amounts will be automatically accounted for as tax exempt in my California state tax return.
Thank you.
