I live in California and have interest income from various CA muni bonds and US treasury and agency bonds that are exempt from state tax. They are reported on my 1099-INTs in:
Box 1 - Interest Income: most or all of this income are CA state tax exempt for me
Box 3 - Interest on U.S. Savings Bonds and Treas. Obligations: all are federal-taxable but state tax exempt
Box 8 - Tax-Exempt Interest: all are both federal and state tax exempt
I am under the understanding that for amounts entered in Box 3 and Box 8, TurboTax accounts for the tax exemption for my California state tax return, and so I don't need to manually make adjustments, whereas for amounts entered in Box 1, I need to manually make adjustments (because TurboTax doesn't know how much of it is state tax-exempt, unless it examines my interest details line-by-line for each of my 1099-INTs).
I would like to confirm if my above understanding is true. I paid for and called TurboTax's live tax advice line several times over the last 2 days and was given 3 conflicting answers: 1) Only Box 1 needs manual adjustment by me; 2) all 3 boxes need manual adjustment; and 3) none of the 3 boxes need manual adjustment - all of those amounts will be automatically accounted for as tax exempt in my California state tax return.
Thank you.
Usually, the interest included is not state tax exempt. if you are sure then it will need manual adjustment on the CA return
as to box 3 The following are not considered U.S. obligations for California purposes: Federal National Mortgage Association (Fannie Mae); Government National Mortgage Association (Ginnie Mae); or Federal Home Loan Mortgage Corporation (Freddie Mac).
as to line 8 Turbotax should ask about the state and amount so if you enter CA and the amount it should be excluded on CA and 1040
Thank you for your reply.
For Box 3, I have none of those you listed and all income are indeed CA tax exempt.
For Box 8, I found that I can adjust for the income during the process to adjust interest income while working on my Federal tax return.
For Boxes 1 & 3, where do I adjust for the tax exempt income, while working on my California tax return?
A) GREAT: you found the follow-up page on how to designate all the box 8$$ as being from CA Muni bonds....in some future year, if you buy some non-CA Muni bonds, you will have to use the second bullet point on that page and break out just the CA Bond $$ from the other state's $$.
B) For box 3 $$, you don't have to do anything to adjust those on the CA tax return. The software already knows to exclude those box 3 $$ from CA income.
C) For any of the box 1 $$ that comes from US "Agencies", IF the CA state software menu has an Adjustment section, sometimes you can designate the $$ from those agencies there to get them subtracted. BUT...make sure you know exactly which US Agencies CA allows to be deducted, and which cannot. (CA must have a list somewhere)
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(I live in NC, and for my TVA bond $$ in box 1, I can only use the desktop NC software in Forms Mode to subtract them...but I've seen that some other state's software has a state menu selection where the $$ can be subtracted).
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Y'all apparently have CA software. Do either of you know if the CA state menu has some kind of "adjustment" menu selection for subtracting the portion of 1099-INT box 1 $$ ....coming from US Agencies...from CA income? (What I was discussing in my point C) above)