When entering the 1099-INT information in the federal interview, I assume you are entering a amount from box 8 for tax exempt interest. The follow on page gives you an opportunity to split the tax exempt interest between states. There you can allocate that tax exempt interest to MD and the other state.
MD initially exempts all the interest from line 2a on your federal return as the federal adjusted gross income does not include it in the transfer to MD line 1. MD Line 2 then adds back the tax exempt interest from the other state to your MD income.
In the MD interview you will then subtract that other state tax exempt interest out as income from another state. The net will be your MD income will not include any MD tax exempt interest nor any other state tax exempt interest.
I don't know your other state, but the same idea will apply once you allocate in the 1099-INT entries.
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