Choose the state where your tax-exempt dividends come from. Is that Texas (Fidelity) New Jersey (National Financial Services) (Me) Michigan?

[SteamTrain · Accepted solution]

Not quite.... it is asking what state(s) issued the bonds that produced the tax exempt $$ in box 10 of that 1099-DIV form.

What you should do right now, is to go to the end of the drop down list and select "More than one state".   That selection is always acceptable.

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Then, when you have time you can study the situation more.  The main story is this... when you hold a bond fund that holds bonds for a mixture of states, you can sometimes get some tax advantage in your resident state by breaking out the $$ coming from your own state's bonds.  The mutual fund company publishes lists of what % of their distribution came from each state, and you have to calculate the $$ amount yourself from that data.

Example: If I get a 1099-DIV with $1000 in box 10 and 2% of that $1000 came from bonds issued by my state.  If I break out that $20 by indicating to my state that $20 came from my home state, then my state won't tax that $20....and since they tax at 5%, that saves me about $1 for my efforts....... but you have to figure out the exact $$ amount from your fund's data on your own.    or don't bother and just select "More than one state"

[SteamTrain]

NOTE:  This question is from March of 2017.  

1) For a 2018 tax return, the tax-exempt $$ are now in box 11 of a 1099-DIV form.

2)  A similar procedure is used tor tax-exempt $$ reported in box 8 of a 1099-INT form

[Cleanman22201]

My Schwab mutual fund is a national municipal bond portfolio, with no states listed in the documents I searched on-line. When I select "More than one state," in Turbo Tax, it is asking to list the dollar amount for all the states where dividends were derived. Suggestions?

[SteamTrain]

I suspect you checked the lower box for more than one state that causes 5 new boxes to show up....uncheck that box

Go to the very top box and select "More than one state" ...from the end of long list of single states that pops up.

[Cleanman22201]

You are exactly right. Thank you SteamTrain. All clear now.

[Anonymous]

@SteamTrain,

I am in a similar situation as @Cleanman22201. I have a robo-investing portfolio with Schwab, and it includes a Vanguard Tax-Exempt Bond ETF (Ticker: VTEB; https://institutional.vanguard.com/iippdf/pdfs/FS4391R.pdf) that generated tax-exempt dividends in 2021. I found a document from Vanguard that spells out the yield percentages by state for 2021 (see page 2 here: https://personal.vanguard.com/pdf/INBST_01_2022.pdf). However, it is unclear to me which of the eight columns/funds listed on of that document (see screenshot below) are my fund, if any, as none of the names seem to match mine by name. Any idea?

Thanks!

[SteamTrain]

@Anonymous 

I've dug around and I can't find it either. Find the Vanguard telephone number, call them and ask them where to find the document online.

[Anonymous]

Called Vanguard. Their automated system is a nightmare since it desperately tries to make you enter your account number, which of course I don't have. After finally convincing the system to connect me to an agent, the wait time was 1.5 hours. Thankfully, they have an automated callback feature. When I finally did get a call back 2 hours later, I had to talk to four people - none of whom had ever heard of the https://personal.vanguard.com/pdf/INBST_01_2022.pdf document - before getting confirmation that the last column in the table on page 2 ("Tax-Exempt Bond Index Fund") is the one corresponding to the VTEB ETF I own. Sheesh...

[SteamTrain]

@Anonymous 

Sheesh is right !    Maybe they'll label it better next. year...there was plenty of title room for those simple letters "ETF".  Save a printed copy with your added notes in a 2022 folder for next year's taxes.

[skyfx]

Quick follow-up question to this thread. I have proceeded as follows:

• On my 1099-DIV, I specified that my exempt-interest dividend originated from multiple states.
• I retrieved the documentation from the broker which provides the state-by-state apportionment (in %age terms).
• I calculated the portion (in dollars) attributable to my state of residence (Colorado).

Now what? On my state return, TurboTax did not prompt me to specify the portion attributable to my state of residence. Instead, it just added back the entirety of the exempt-interest dividend to my federal income (i.e., it is not exempting the Colorado portion from state taxation). Am I missing something?

[LenaH]

The prompt to specify where the exempt-interest dividends was earned is in the federal side of TurboTax. If you go back to your 1099-DIV entry, there should be a follow-up screen titled, Tell us more about your exempt-interest dividends. This is two screens after you input the amounts from your 1099-DIV. On this screen, you will separate Colorado amounts with the remainder (you can mark the others as multiple states). 

The amounts should flow correctly to your state return. In a mock return I created, the $700 in my example flowed to the DR0104 under Additions to Federal Taxable Income, Line 8. It does not tax the $300 marked as Colorado. Please see screenshots below for additional clarification. 

@skyfx 

[skyfx]

Thanks, @LenaH . It is actually on that "Tell us more about your exempt-interest dividends" follow-up screen where I selected "Multiple states" from the dropdown. See first screenshot below. What I didn't realize is that only if you select the other radio button - "I earned exempt-interest dividends in more than one state" - are you prompted to actually enter the allocations to each state. See second screenshot below. Strange that TurboTax presents you with two options that are seemingly the same but different. Anyways, thanks for your help!

[SteamTrain]

@skyfx 

Yeah, the first selection is needed by many people who do not want to bother with the second selection...since the second selection requires you to calculate the exact amount.

If CO taxes at 5%, that $4.46 entry you made saves you (maybe) 22 cents in CO taxes.  SO hardly worth the bother....so some people just skip their state breakout.

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Also, people in non-income tax states, like TX, WY etc....they don't need to bother because it does them no good to make any effort at all.....they just select the top box Multiple States...and move on with their preparation and filing.