Let TurboTax sort the interest to the correct categories by entering Form 1099-INT as received.
Nearly all interest would be taxable at the federal level, but may not be when amounts are reported in Box 3 or Box 8.
The interest would be designated as tax-exempt to your state on Form 1099-INT. The supporting details from the year-end statement will show which state had the tax-exempt interest.
By looking through these details, you will be able to answer the questions from the TurboTax interview.
For more information, see: Topic No. 403 Interest Received
Filing Tax Form 1099-INT: Interest Income
