South Carolina Other Additions

Themushj · ‎February 06, 2026

This HELP sentence from Turbotax is what is confusing me.

"Expenses deducted on the federal return related to any income either exempt or not taxed by South Carolina such as investment interest to out-of-state partnerships and interest paid to purchase United States obligations."

Answer: Since the income was reported on the Federal return, it is already being taxed by South Carolina. IE. it was not exempt from SC taxes. Hence, those expenses do not need to be added back.

MarilynG1

That is correct. Only exempt interest on your Federal return from non-South Carolina sources would need to be added back in in the SC interview (except US obligations, which are not taxable in SC).

Add-Back Rule: Interest on non-SC state and municipal bonds (often in Box 8 of 1099-INT or specific sections of 1099-DIV) is taxable in South Carolina.
Mutual Funds: For bond funds, you must add back the percentage of income attributable to out-of-state, non-federal obligations.
US Government Interest: Interest from federal obligations (e.g., U.S. Savings Bonds, Treasury Notes) is exempt from South Carolina tax. When entering this in TurboTax, you must specifically identify it as "U.S. Government Interest" to ensure it is not incorrectly added back.
TurboTax Action: During the SC state interview, look for questions asking to identify the source of your tax-exempt income to ensure the correct add-backs or subtractions are made.