In my state, Michigan, income from US Treasury obligations is exempt from state income tax, so when calculating my Michigan dividend income, I exclude any such portion from dividend income received from various mutual funds and use the "% of Income Earned on Direct US Government Obligations", obtained from each mutual fund company, to help calculate this. Do I also need to make a similar adjustment for any mutual fund Capital Gains Distributions listed on Form 1099-DIV and for Capital Gains / Losses resulting from the sale of mutual fund shares listed on Form 1099-B? If so, should I use the same "% of Income Earned on Direct US Government Obligations" as used for dividend income?
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Yes. Adjust your dividends. In the dividend section, TurboTax will ask whether "A portion of theses dividends is U.S. Government interest." Enter the amount of dividends that represent interest from U.S. government obligations.
Michigan also says "Gains/losses from the sale of U.S. obligations are not subject to Michigan individual income tax."
See When do I need to file a Michigan Adjustments of Capital Gains and Losses MI-1040D?
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