How deduct/change U.S. government interest from state (IL) income?

[Teng0]

How do I deduct/change U.S. government interest from state (IL) income? In IL-1040, I want to change the amount for U.S. government interest. Clicking "Edit" does not offer any option to do anything. How do I change the amount? A percentage of dividends in Form 1099-DIV from mutual funds is from such interest and is deductible in Illinois. Help on this topic refers to only Form 1099-INT, nothing on Form 1099-DIV.

[CarolC · Accepted solution]

Follow these steps to deduct U.S. Government interest form your Illinois income.  In the federal return, after you enter your 1099-DIV information, select Continue -

• The next screen will ask Tell us if any of these uncommon situations apply to you
• Select A portion of these dividends is US Government Interest, select Continue
• Select the appropriate option on the next screen, select Continue
• Enter U.S. Government Interest in the box provided
• TurboTax will carry this information over to your Illinois tax return

[AMTFOE]

This is really confusing because the TVA or other agency INTEREST I am trying to exclude from my IL return is reported on the 1099-INT form, NOT 1099-DIV form. If I try to specify special state treatment after entering the 1099-INT, TurboTax only allows special treatment for Maine, Maryland, Mass, New Hampshire, New Jersey, Tennessee and West Virginia.

IL Publication 101 (Rev. 3/10) states, "The income from notes, bonds, debentures, and
other similar obligations issued by the following is exempt
from Illinois Income Tax: ...Tennessee Valley Authority."

Wouldn't excluding 1099-DIV amounts create an inconsistency or is it OK since it doesn't affect your Federal taxes and the right amount flows through to IL Schedule M, line 21?  What if your actual DIV income is zero or less than the interest you are trying to exclude, will this workaround still work?