Are capital gains on 1099-DIV from U.S. obligations subject to Maryland income tax?

[CherylW · Accepted solution]

No, they are not.

This, from the MD 2017 State & Local Tax Forms & Instructions, Subtractions: 

ab. Income from U.S. Government obligations. Enter interest on U.S. Savings Bonds and other U.S. obligations. Capital gains from the sale or exchange of U.S. obligations should be included on this line. Dividends from mutual funds that invest in U.S. Government obligations also are exempt from state taxation. However, only that portion of the dividends attributable to interest or capital gain from U.S. Government obligations can be subtracted.

[krelged]

I understand this but Turbo Tax only asks if any capital gains are from US obligations, not dividends.  This appears to be a mistake.  Please help me understand!

[krelged]

I understand this but Turbo Tax only asks if any capital gains are from US obligations, not dividends.  This appears to be a mistake.  Please help me understand!

[rsevick]

does anyone know this answer to the comment above?  I would like to know/confirm this as well.

[CherylW]

see below for how to input those dividends.

[rsevick]

thank you but my question is the same a krelged above.  Turbo Tax (in the MD state portion) is asking me if any capital gains from US obligations they are tax free and to enter an amount that should be tax free.  Is this capital gains only, ordinary dividends, or both?  I found a form on American Funds site that helps you calculate this (for their mutual funds) but it only talks about dividends (not capital gains) from US obligations are tax free ... which just confuses the issue for me even more.  Here is the worksheet calculator from American Funds: <a rel="nofollow" target="_blank" href="https://www.americanfunds.com/individual/service-and-support/tax-center/interactive-worksheets/ustre...> Any help is appreciated..  I waiting on a call back from MD tax office as well.  Thanks!!

[CherylW]

When you're in the Dividend section, after you enter them, you see the screen below.  On the next screen, you can enter the portion that's US Government obligations.

The next screen asks you the state that it's from.

[CherylW]

If you have MD capital gains that are tax free, enter them on this screen (see below):

[mike-davis]

Has anyone figured out how/where to get the US Obligations CAPITAL GAINS information.  US Obligation on DIVIDENDS is easy, but Capital gains I have not been able to find.  Thx

[KrisD15]

How are the Capital Gains reported? On what tax form? 

The Maryland State Return has a screen that reads "Here's the income that Maryland handles differently".

If you see "Partnership and S Corporations Adjustment" click there, answer Yes if this was reported on a K-1. 

Answer "Yes" if this was an "Estate and Trust Addition".

[skusselson]

We believe there is a bug in Turbo Tax software. The state of Maryland allows you to exempt a certain percentage of US general obligations interest from total ordinary dividends AND Total Capital Gains Distribution.  But if you your total ordinary dividend amount is smaller than your percentage amount of total exemption from US General Obligations for the particular fund, it flags this and says the total exempt amount can not be higher than the total ordinary dividends amount.  This has to be a bug in the turbo tax software because MD allows you to also exempt a percentage of long term capital gains distribution.  Can somebody help correct this?

[Joe5522]

I also think there is a bug in the Maryland State Tax section of the 2019 TurboTax program.  But the bug is somewhat different than you describe...I have capital gains from stock sales and Turbo Tax correctly lists the amount on line 1c Capital Gains but then subtracts the same amount on line Subtractions from attached form 502SU and incorrectly identifies them as "ab" Income from US Government obligations.  These capital gains are form stock sales not US bonds.  TurboTax did not make this error in preceding years.  How do we get this fixed?

[jjclhl20854]

2020 version still has the same problem.

[marionbarker]

I agree that the same glitch is present this year. I don't own any US bonds or Treasury obligations, and in prior years Line ab of Form 502SU has been blank. This year it lists an amount that's more than 35% of all the interest and dividends I earned in 2020. And there is no way you can determine how TurboTax calculated the number--in the online version, anyway. Perhaps it's different if you use the downloaded software.

If anyone knows a workaround for this issue, please post. Thank you.