Handling Tax Exempt Income (1040 2a) on With Part-Year Returns For Multiple States

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Hi.  I moved to Maryland  on November 1, 2020.  TurboTax has me completing two Part-Year returns, and has provided places in each State interview to report non-resident income which it then subtracts from the Maryland Adjusted Gross Income as I expect.

However, TurboTax did not provide the same option for non-resident Tax Exempt Income -- it just copied the entire amount from Form 1040 line 2a into Maryland Form 502 line 2, even though only a small fraction of that income (17%) was actually earned while in Maryland. 

This is a problem since my previous state did not tax any Tax Exempt Income whereas Maryland only excludes Maryland Bonds from taxation.  

Am I correct that I should only be reporting the Tax Exempt Income earned while a resident of Maryland, and if so, is there anyway to have TurboTax handle this correctly (other than my directly overriding form 502 line 2).

Thanks in advance.

[DMarkM1]

When entering the 1099-INT information in the federal interview,  I assume you are entering a amount from box 8 for tax exempt interest.  The follow on page gives you an opportunity to split the tax exempt interest between states.  There you can allocate that tax exempt interest to MD and the other state.  

MD initially exempts all the interest from line 2a on your federal return as the federal adjusted gross income does not include it in the transfer to MD line 1.  MD Line 2 then adds back the tax exempt interest from the other state to your MD income.

In the MD interview you will then subtract that other state tax exempt interest out as income from another state.  The net will be your MD income will not include any MD tax exempt interest nor any other state tax exempt interest.

I don't know your other state, but the same idea will apply once you allocate in the 1099-INT entries.

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Thank  you for your answer.  However, I don't believe this solves my problem so I would appreciate clarification.

I am entering the Tax Exempt Interest from Box 11 on the 1099-Div.  Then, as you indicate, the follow-on page gives me an opportunity to split the tax exempt interest between states.  However, my understanding is that the by-State splitting on this page represents the relative percentage of each State's bonds within the mutual fund's portfolio, not the amount of tax exempt income earned while living in the State. 

As  you indicate, Maryland then transfers all the tax exempt interest from Other (i.e. non-Maryland states) to my MD income.  This also occurs for the other State that I lived in for the first 10 months, so I am being taxed by two states on the income from all States other than MD and the other State.  This can't be right, can it?

I was expecting TurboTax would provide someplace in each State's step-by-step to split out the non-residence tax-exempt income based on where I was living when I received the income -- just as it does for all other income and separately for Losses/Adjustments.  However, there is no such capability that I can find. 

(Note that I am having a similar problem with Income from US Obligations which neither state taxes.  These are entered in total as part of the Federal Income 1099-DIV step-by-step.  The MD step-by-step then has a  separate question for Capital Gains from US Obligations for MD which are added to the earlier Income, but there is no TurboTax question in either State to split the US obligations offset between the two States so the total Income offsets show up in both States -- another double-count, even though the income itself is split between the two states.  I am going to fix this with a Form Override, but I don't like to do that.)

Thanks in advance.

[bjacobstax]

I'm having a similar issue with my 2021 taxes for part-year NC and SC tax-exempt income. SC program seemed to handle the division properly, asking me what portion I needed to add back for when I was a SC resident. But the NC program is automatically computing a Tax-exempt number that is lower than what it should be. When I look at the data source it says it's coming from Federal Schedule B but I can't find this number any where. It's not all the tax-exempt income from states other than NC. It's not a percentage based on the amount of time I was in NC. I can't figure out where the number is coming from. I guess I'll have to just override which I hate to do. Did you ever get yours resolved or did you have to override? Thanks.