Interest from Schwab U.S. Treasury Money Funds: Free from Oregon State Tax

[smac2]

We are in Oregon and we receive interest from two Schwab funds that invest in "securities backed by the full faith and credit of the U.S. government."  Since US Treasury Bills, Notes, TIPS are not subject to state tax, we assume that the interest from these two funds is also tax free.

The two funds are SWRSX (Schwab Treasury Inflation Protected Securities Index Fund) and SUTXX (Schwab U.S. Treasury Money Fund)

Can anyone verify the state tax free status of these Schwab funds?

[tagteam · Accepted solution]

Ask Schwab.

Interest from obligations of the U.S. government are exempt from state income taxation. Dividends from funds holding such securities may not be.

[fanfare]

what does Schwab say ?

@smac2 

[fanfare]

Q. what does Schwab say ?

A.  Shareholders are urged to consult their tax advisors as to the consequences of these and other state and local tax rules 

@smac2 

[smac2]

This is why I ask this question, here, on turbotax. TT is my "tax advisor"

On my own, I have found out that if a fund holds 100% US government securities, than interest from that fund is free from state tax.  What I need to know is the minimum percentage of government securities a fund most hold, it may be 50% for example, to be exempt from state tax.

Anyone know this for Oregon?

[tagteam · Accepted solution]

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@smac2 wrote:

This is why I ask this question, here, on turbotax. TT is my "tax advisor"

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TT is DIY income tax preparation software, not your tax advisor in any sense (although this is a support board, of sorts, any advice you receive is not official and cannot be relied on as authoritative.

You can contact the Oregon DOR at the link below for official information upon which you can rely.

https://www.oregon.gov/dor/programs/individuals/Pages/default.aspx

[smac2]

Understood. thank you

[tagteam]

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@smac2 wrote:

Understood. thank you

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My pleasure and what I can tell you is that, from personal experience, at least one state did not allow an exemption for funds holding T-Notes that passed through income as dividends. Whether that is (was) constitutional or not is beyond the scope of this discussion.

[fanfare]

if your fund is x% US treasury income, then you report 100 - x % state taxable income.

The mutual funds report what x is , somewhere.

@smac2 

[smac2]

thank you. helpful.

[smac2]

I thought the funds were paying out interest income but you're right, they are paying a cash dividend.

Schwab says to check with my CPA. I will check with the OR dept of revenue.

Thanks again, its been educational.

[champson56]

Some clarification: If you hold funds from SWVXX (Schwab Value Advantage Money Investor Shares)

which holds "securities"  (read "not treasury bonds), then these are treated as ordinary dividend income.

I have SWVXX, and I checked, the funds are taxed by both Federal and the state of Oregon.