Do I need to manually adjust for state-tax exempt interest amounts?

[sfvoyage]

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. 

[Mike9241]

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

[sfvoyage]

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?

[SteamTrain]

@sfvoyage 

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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@VolvoGirl    @TomYoung 

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)