When entering municipal bond interest on the Federal form, I specified the amounts from my resident state of Arizona and other states from each 1099. After subtracting the private activity bond interest, the amount of non-Arizona municipal interest shown on line 13 of the Arizona form is very close (although not exactly) what I calculated it should be. However, the amounts shown on the Schedule of Non-Arizona Municipal Interest are nowhere close to the correct values, and the page cannot be edited. When I went to the "forms" view, the page also could not be edited (it is confusingly labeled as Form 140 line B6). Should I care?
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One other thing: states are not allowed to tax the interest of bonds from US territories. So, Puerto Rico, Guam, USVI etc. could be the source of the difference (particularly "line 13 of the Arizona form is very close (although not exactly)").
Should I care?
Probably not. I say that as somebody not specifically familiar with the AZ forms. But, the general rule is: Your state will tax all the dividends except the dividends from municipal bonds from your state.
In TurboTax, when asked which state, check the box "I earned tax exempt dividends in more than one state". In the drop down menu, select your state and enter the $ amount you calculated. In the 2nd box, select "More than one state" (at the bottom of the scroll down list) and enter the remaining dollar amount (do not go to the effort of entering the individual other states...that's probably the source of the error.).
One other thing: states are not allowed to tax the interest of bonds from US territories. So, Puerto Rico, Guam, USVI etc. could be the source of the difference (particularly "line 13 of the Arizona form is very close (although not exactly)").
Well, I did not know that. When I subtract the non-Arizona municipal interest listed on the 1099-DIV from U.S. Possessions, I get much closer to the amount that TurboTax migrated from the Federal to the State return. But I don't know how TurboTax would have known this percentage, since I entered the data on the Federal return as "Arizona" and "More than one state". But thank you for informing me of that new bit of information.
I'm pretty sure I figured out why the non-Arizona municipal interest income entries and total shown in the State Taxes section of TT are wrong. In the Federal Taxes section, TT prompted me to fix an error in box 8 of a 1099-INT Worksheet. The corresponding 1099 included tax-exempt interest from multiple states, but there were no entries for the individual states in box 8. (Maybe I failed to supply that data somewhere in the EasyStep process.) I resolved the problem by filling out the table in box 8 with state IDs in column (a) and corresponding amounts of interest in column (c). TT calculated the percents of total interest in column (b). Note that box 8 in the 1099-INT Worksheet shows tax-exempt interest and box 13 shows bond premiums.
In the State Taxes section, TT calculates the non-Arizona municipal interest income for each state using the following formula:
(total tax-exempt interest - total bond premium) x (percentage of total interest from box 😎
The problem is that the per-state percentages from box 8 were calculated for the interest, not the bond premium. As a result, the total and per-state income numbers are wrong.
I ran into the same problem last year, but I don't remember how I managed to override the tax-exempt interest income in the State Taxes section.
Ha! Just noticed that "box 8" followed by ")" got converted to an emoji in my message.
Just remembered how to fix the non-Arizona municipal interest income numbers calculated by TT. Go to Forms and select the Arizona Form 140 Explanation Statement. Select an entry in the Amount column by clicking on it. Next go to the TT menu bar and select Edit -> Override. Now you can replace the selected entry with the correct value. Repeat for any other incorrect values in the Amount column.
One more thing ... You also need to override the total of the non-Arizona municipal interest income entries on Arizona Form 140.
Thanks for the hints. I will give your suggestions a try. I did try entering the Arizona and non-Arizona amounts on the worksheets, but I guess I didn't see the "override" option on the Edit. Onward....
I literally have only $46 in municipal income and $0.38 was AZ. I would rather give them all $46 than take over 2 hours to develop the spreadsheet for 50 states and three sources of income for the $46. Is there some cap that we don't have to provide this BS level of detail to AZ. Something we can waive that allows us to just forfeit the $46? I am literally splitting $.09 from one broker over 50 states.... insane
@guitargirl Yes, only 0.38 is deductible to AZ which rounds down to zero. Skip it all.
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