Calculate U.S. government interest from a bond ETF for Massechusetts

Hi,

I am a Massachusetts resident and own bond ETFs which invest a portion in U.S. government treasuries. Is this portion of interest deductible for MA taxes?

If so, how do I determine what portion of the interest I received from these ETFs is deductible for state taxes? Is it just going through each fund and looking at total dividends distributed and multiplying that number by the percentage of assets in U.S. treasuries held in that ETF (as indicated on the ETF website)?

For eg (hypothetical), if bond ETF from Vanguard, BLV has 40% of its assets in Treasuries, does this mean 40% of the dividend distributed is tax deductible for Massachusetts? I ask because I know that CA has a rule which says you can deduct only if the fund assets in treasuries are more than 50%. So not sure if less than 50% has any implication for tax deduction in MA.

Thanks

1092

Expert Alumni

Apr 5, 2021 10:52:01 AM

Vanguard and other financial companies have a "Tax Center" on their websites with information on the U.S. government percentages. If you can't find it, you can call the fund.

Vanguard U.S. government obligations information.

Level 1

Apr 5, 2021 12:02:04 PM

Hi @ErnieS0,

Thanks for your response.

I do have the percentages. The question was not about how much is the percentage. The question is, given the percentage, is the tax deduction for the state of Massachusetts proportional to the percentage? Put it another way, is there fund investment threshold requirements for passing through state-exempt income for Massachusetts?

Thanks

Expert Alumni

Apr 5, 2021 12:14:06 PM

There is not minimum threshold for tax-exempt income in Massachusetts. Any income from U.S. government obligations will be subtracted from MA gross income.

In this example, I used $1.

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Calculate U.S. government interest from a bond ETF for Massechusetts