Excluding U.S. obligations portion of Capital Gains from Maryland taxes

[ItzRav]

I'm using TurboTax 2019 Premier desktop for Windows.  In preparing my Maryland state return, I'm at the section entitled "Capital Gains From U.S. Obligations are Tax Free -- You can exclude capital gains from U.S. obligations because Maryland does not tax them.  Enter any portion of your capital gains that came from U.S. obligations."  It then lists my total capital gains (total of box 2a, total capital gain distribution, for all funds).  Then there is a single box for entering "Total From U.S. Obligations."  On my T. Rowe Price 1099-DIV, there is a table which lists interest on direct U.S. government securities.  It has a column titled "% of dividends from U.S. government securities."  But notice it says dividends.  The instructions for that column say it's for computing the amount of DIVIDENDS that are U.S. government securities, and it's multiplied by box 1a which is total ordinary dividends, not capital gains.  So I can't use that column for capital gains.  The table also has a column titled "% of fund in U.S. government securities at December 31, 2019."  But the instructions for that column say it's for computing an exemption from state intangible property tax, NOT for capital gains.  So I can't use that column for capital gains.  There doesn't seem to be a column for computing the exclusion of capital gains from U.S. obligations from state taxes.

Please note, this is NOT the same thing as when entering dividends for the federal return.  This is for excluding the portion of Capital Gains attributable to U.S. obligations when entering info for my Maryland state return.

Can anyone tell me how I can compute the portion of capital gains from U.S. obligations?  Thanks.

[AmyC]

Call T Rowe price. You are correct in all that you said. The investor knows the answer.

[ItzRav]

Thanks for your response.  I appreciate it.  I did end up calling T. Rowe Price.  And Vanguard (who we also have some funds with).  And the support number for the office of the Maryland Comptroller.  TRP gave me the story that if there were any portion of their capital gains distribution to me attributable to U.S. government obligations that they would have included a footnote to that effect under each fund that had any.  I found that hard to believe, seeing as a number of my funds had dividends that did have a portion of such obligations, some significantly so.  The dividends are coming from the same funds as the capital gains.  It's just a pot of money.  If the dividends have them, it only makes sense (to me) that the capital gains would have some too.  Not zero.  But not one of my funds had a footnote.  At any rate, Vanguard's response made even less sense.  Their answer was that it was too complicated for them to compute, that there were too many factors to consider, and so they don't provide that information.  If that's the case, how can anyone ever fill in that line on the Maryland tax form, and why bother even having it?  Lastly, the Maryland Comptroller's office said what I expected them to say, which was to contact the mutual fund companies.  Which I told them I did and what their answers were.  They were as perplexed as I was.  Oh well, I can't just guess the number, so I'm leaving it blank and I'm moving on.

[AmyC]

I was expecting footnotes, not it is too complicated to compute. Wow! At least you did all you could. Good luck!

[cbielski]

I have the exact same issue. I contacted Vanguard, and they essentially said that they don't have sophisticated enough accounting available to customer service to answer the question. The fund in question in my case has a percentage of U.S. obligations assets in the fund, and I would be tempted to use that percentage of the gains indicated in the 1099 B for that fund. I know that would not be accurate, but it would likely be closer than zero. (And having spent hours on this at this point, I think I have earned any benefit.)

I wish all of us good luck and better coordination between the state of Maryland and Vanguard in the future.

[Mr_Matt]

I had a footnote from TRP in 2020's on a1099-DIV for a treasury fund, but not this year.  Dividends would be from interest from the bonds & capital gains sales of underlying instruments so it makes sense (to me) these could be two different values. 

"XX.XX% of the amount reported in Box 1a and XX.XX% of the amount reported in Box 2a results from the sale of direct U.S. government obligations."  

[ErnieS0]

Box 1a on Form 1099-DIV are ordinary dividends and Box 2a are a subset of Box 1a called "qualified dividends", @Mr_Matt, so the percentages may be different because not all dividends are "qualified".

For information on the percentage of government securities for specific funds, check T Rowe Price's Fund-Specific Tax and Reclassification Information or call them.

[rrglenn]

I also contacted my Brokerage house, TDAmeritrade, and they  essentially gave the same answer: They either refuse or have no ability to provide the amount of capital gains that came from US obligations(bonds) for my account.

[gpmerrill]

I too have been frustrated that the lack of information from the mutual fund managers is costing me on my Maryland income tax.

After numerous unsuccessful calls and e-mails to Vanguard about this, I sent an old fashioned letter to the Vanguard Tax Center last April. I never got a response.

Seeing that there was still no helpful information in Vanguards 2021 1099's, or on-line, I decided to send a letter to the Vanguard CEO, Mortimer Buckley, asking for help.

I have gotten an e-mail back from A. J. Crader one of Mr. Buckley's Executive Correspondents.

It says: "Vanguard does not list U.S. government obligation details for capital gains distribution information. We continually analyze suggestions like this and strive to incorporated the services and features most requested by our shareholders. While I cannot guarantee that your suggestions will be implemented, you can rest assured they have been shared with the appropriate areas of management for future consideration."  

[Kylei]

Yup, I have the same experience with Merrill. They cannot apportion out the capital gains from US obligations either. It appears the the state of MD has a tax deduction that is almost impossible to take advantage of. I guess I should not be surprised.

[dickryan80]

In excluding U.S. obligations of capital gains from Maryland taxes, what is the definition of U.S. obligations?

[Potomac Marylander]

Your response is WRONG.  You are talking about 1a and 1b, which is irrelevant to this conversation.  2a is the subject of this discussion and it is Capital Gains Distribution, not qualified dividends as you erroneously stated.

Wrong answers can have tax consequences for taxpayers and Intuit should not provide such reckless wrong responses.

[alanealive]

I live in MD and have come to this juncture in my 2024 MD tax return. if you own ETFs or MFs that contain any US Obligations holdings you can get a tax credit in the Maryland State tax return based on a % of the dividends paid to you/investor  in 2024. 

Calculating US OBLIGATIONS THAT ARE ALLOWED TO BE A TAX CREDIT IN MARYLAND HAS TO BE DONE ASSET BY ASSET BY CONTACTING THE CREATOR OF THE ASSET, E.G. ISHARES, Vanguard, ETC. TO OBTAIN A DOCUMENT SIMILAR TO THIS ONE BELOW. from VANGUARD.  IT IS A LOT OF WORK AND SOME OF THESE FINANCIAL FIRMS ARE MEAN AND WILL NOT HELP WITH THIS NOR TELL ME WHERE TO FIND THIS FOR THEIR ASSETS!!

IF YOU OWN VANGUARD ASSETS (ETFs or MFs) Vanguard publishes a document: 

U.S. government obligations

income information

Important tax information for 2024

Here is the beginning language from the VANGUARD document that answers the question as a better explanation of what I have to learn for the remaining ETFs. on my 1099 THAT I EARNED A DIVIDEND. I also own XLK & XLI & they are the two EFTs left I’m not sure about how to do the calculations/WHERE to find the data.   I did get a spreadsheet from SPDR that does list these two but I don't know how to interpret what they gave me..... I can send it but it is large so please advise if I should send...  Hoping you have been down this road and can offer some insights. Tks

  Below is the intro language from the Vanguard document TITLE ABOVE here as help to understand the issue. 

U.S. government obligations

income information

Important tax information for 2024

This tax update provides information to help clients properly report state and local tax liability on ordinary income

distributions received from mutual fund investments in 2024.

On the next page, you’ll find a list of Vanguard funds that earned a portion of their ordinary dividends from

obligations of the U.S. government. Direct U.S. government obligations and certain U.S. government agency

obligations are generally exempt from taxation in most states.1

Percentage of the fund’s total ordinary dividends derived from U.S. government obligations in 2024.

A state or local tax office or a tax advisor can help determine whether your state allows the exclusion of some

of or all the income earned from mutual funds that invest in U.S. government obligations. If your state allows an

exclusion, refer to the next page for the percentage of ordinary dividends derived from U.S. government obligations

that may be excluded for each fund that was invested in. To determine the portion of dividends that may be exempt

from state income tax, multiply the amount of “ordinary dividends” reported in Box 1a of Form 1099-DIV by the

percentage listed in the following table.

The amount of each ordinary income distribution you received is reported on your 1099:

• For Vanguard brokerage accounts: In the detail portion of your 1099 Tax Statement, see Details for Dividends

and Distributions. For each fund, subtract from the Total Dividends and distributions any Long-term capital

gains, or any Nondividend distributions, or both.

• For Vanguard legacy mutual fund accounts: See your 1099-DIV Box 1a, Total ordinary dividends

Has anyone here found better info on how to do this? I still have ETFs that I can't figure this tax credit out for. Thanks

[alanealive]

SAME AT SCHWAB. I FIND THIS REALLY POOR CUSTOMER SERVICE.

[alanealive]

It is nuts that a State can have a tax credit but the ability for a TAXPAYER TO TAKE IT IS SO CONVOLUTED AND NOT SUPPORTED BY THE FIRMS THAT CREATE THE ASSETS YOU BOUGHT! SHAMEFUL AND NOT RIGHT!!