Oregon: deducting federal agency bond interest

[Owl5]

I've run into the following problem year after year with TurboTax (desktop version). I would like to be able to efile, but of course cannot do this with any overrides. But the ONLY way I've found to complete my Oregon state return is by using an override. If anyone can help, that would be great. I would definitely like to be able to efile instead of mailing (USPS lost my return last year even though it was sent certified).

Here is the problem: I own several U.S. government backed federal agency bonds that are state tax-exempt (TVA, Fed. Home, Fed. Farm Credit). Interest from these appears in my brokerage 1099-INT (line 1). There is no way that I've found in TT to designate that this interest is state tax-exempt in Oregon (there are options to do this for a few other states, but not Oregon).

I therefore am forced to override the amount indicated under Oregon's ASC form, Subtractions, and insert there the amount of interest from these state tax-exempt federal agency bonds. And when I do this, I then cannot efile my return.

Here is the tax status of these bonds, as shown by FINRA:

tax status of fed. agency bond interest

Thanks for any help!

[DawnC]

There is a box for Local Government Bond Interest under Other Subtractions on the Oregon return that does not require an override. 

Interest and dividends on U.S. bonds and notes (Subtraction code 315). A subtraction is available for interest or dividends from U.S. bonds and notes included in federal income.

Local government bond interest (Subtraction code 317). A subtraction is available for interest or dividends on obligations of counties, cities, districts, ports, or other public or municipal corporations or political subdivisions of Oregon to the extent included in federal income.

[Owl5]

Hi Dawn C -

Thank you for your prompt reply. I've seen the box you mentioned, but I do not believe it could be considered appropriate since federal agency bond interest is not "local government bond interest." Federal agency bond interest (such as TVA) needs to be identified as interest from a U.S. government directly backed obligation, and is not "local government bond interest."

When you said that "a subtraction is available for interest or dividends on obligations of counties, cities, districts, ports, or other public or municipal corporations or political subdivisions of Oregon," this doesn't apply to nationwide federal, non-local, bonds issued by federal agencies like TVA. I have therefore needed to make use of code 315 for interest for federal agency bond interest -- and there is no way (that I know of) to do this in TT without resorting to an override.

Please do reply if you have reliable information otherwise. I appreciate your attempt to help!

[Owl5]

I want to add the following constructive criticism and request to Turbotax:

This issue involves a major oversight and omission in Turbotax, one which TT has ignored now for years. Federal agency bond interest is a major category of fixed income investment. There are three federal agencies whose individual bonds are tax-exempt on the state level.

In my original post, I included a chart showing which federal agencies these are: Federal Home Loan Bank, Federal Farm Credit, and TVA. Bonds issued by these three federal agencies (these are not "local government bonds") are purchased and held by many thousands of people. There should be a way in TT of excluding from one's state tax liability , in accordance with tax law, interest that is received from these bonds.

But there is no way to do this in TT without resorting to an override, as far as I have been able to find out in researching this year after year. People who live, for example, in Oregon, as I do, and who own any of the above three federal agency bonds are forced to override TT in order to insert in my state's return under Subtractions (code 315) the amount that should be excluded from state taxation --  that is, the bond interest received from these federal agency bonds. And once you use an override, you cannot then eFile.

Turbotax, please correct this major oversight. It has gone on long enough.

[fanfare]

Schedule OR-ASC line 7 is dedicated to  Section 2 has a box for code 315.

Can't you open that form in Forms Mode (desktop version) ?

[fanfare]

Sorry, Line 7 is the designation in a different tax software program.

The actual form has a place for codes i.e. 315 in Section 2.

[Owl5]

fanfare - Yes, it is in Forms view that I'm forced to do the override.

Because you can't do overrides in TT's online versions, I have to buy the desktop CD version -- every year -- in order to do this single override, which ought to be unnecessary.

Since interest income from federal agency bonds is very common, Turbotax is neglecting to take into account a major source of interest income that is state tax-exempt.

[fanfare]

I don't have the Oregon state tax return program, so I can't try this.

I guess you've been struggling with this long enough to know what the scoop is with turbotax.

[Dfery]

I have this same problem with Fed Bond Interest and Desktop TT and the OR-40.  

How and where in or-40 is the place to enter this and do the override as you have listed.

[fanfare]

Schedule OR-ASC  Section 2 has a box for code 315 (and other codes).
Open that form.

You should not need to override.

[Dfery]

Perfect,  I found it and it required no override - Thank you.

[Owl5]

Not true, unfortunately. You can certainly *open* OR-ASC Section 2, but there is no way that TT allows you to include in the box for code 315 the total amount of interest received from the federal agency bonds which I listed in my OP. -- Instead, you must total this interest yourself, and then insert that amount by overriding whatever appears (a blank or another amount) in Section 2 of OR-ASC.

As a result of this inability of TT to handle tax-exempt federal agency bond interest, I'm forced either to mail my Oregon state return, or take in person to the Dept of Revenue's office (which I did this year since last year the noble USPS lost my certified mailing).

TT needs to correct this!!

[Dfery]

Dude, There is a defined line for Fed T Bill Dividends you do not need to enter the 315 code.  I tested in multiple ways and it is listed and I added up my dividends and entered the number in the box.  It worked.  No overrides.  Yes TT needs to fix, but there is a simple way to enter this that works so you can efile the Oregon State return.

[Owl5]

Hey Dfery -

You're not on the same page: TT handles Treasury bond and Treasury bill interest just fine. That isn't the issue. It's the fact that TT doesn't at present identify *federal agency bond interest*  (like TVA bond interest) as state tax-exempt.

So if you have any Treasury bond interest, it *will* appear OK in the Oregon ASC form, but *then* -- if you have *federal agency bond interest*, you will have to override the Treasury bond interest and replace it with the total of your Treasury bond interest + your federal agency bond interest. -- If you *don't* do this, then Oregon will tax you inappropriately on your *federal agency bond interest*.

[GreenApple123]

Hello Owl,

Just found your question regarding deducting federal agency bond interest at state level. I have the same issue at PA.  Your post was 3 years ago, just wonder if you have found a way to resolve this now?

Your help/guide will be highly appreciated!