I have federally tax-exempt interest. Why is Turbo Tax showing the entire amount as deductible on the state form?

[SteamTrain · Accepted solution]

Unless the $ came from your own state's bonds...meaning any State/local/city/municipality/school district/ and that sort  of government bond that is actually located within your state....if not one of those, then all other tax-exempt $$ that came from other state's bonds are added back as taxable income by your own state. Just because the Feds don't tax it, that doesn't mean the your state can't....and most other states do the same thing.

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IF the tax-exempt $$ are relatively large, you can break out just your resident state's bond interest (and the US territories), but you do that breakdown in the federal section where you put in those tax-exempt $$$ on either 1099-DIV or 1099-INT forms....but you must calculate the exact $$ amount yourself from whatever data the broker provides you (they usually publish it online if you are only getting e-forms....and CA residents have limitations on what they can break out).

An example of an NC state breakdown for an NC resident is shown below: