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If you know the tax-exempt interest is strictly generated from California (CA) holdings then you can enter the full amount under CA. If it is earned through a "fund", then read the rest of the information to find the correct percentage for CA.
Such federal tax-exempt dividends are not always tax-exempt for state. State-taxable dividends often come from mutual funds or Exchange Traded Funds (ETFs) that hold a multi-state portfolio of municipal bonds. All of the income from those bonds, other than than those issued within your home state, are taxable by your home state. Thus, we need to "adjust" the Form 1099-DIV, Box 10 entry to account for that fact for your state return.
In TurboTax, this is manually done in the 1099-DIV interview. The specific numbers you use will be based on the percentages that are provided with the Form 1099-DIV, so you can make the appropriate adjustment(s) to your exact circumstances.
May be it is easier to compute what is taxable for CA from the federally tax exempt amount first based on information provided by the investment company and enter the amounts which are taxable for CA and the portion which is not when TurboTax starts the interview on Tax Exempt Funds when it recognizes one has income from Tax Exempt Funds
Yes, that is a quick and easy way since you only care about making sure CA is right, subtract it from the total and you have it. Excellent work!
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