Interest from federal I Bonds is exempt from state taxes, but not federal taxes. If I enter the interest reported on the 1099-INT on my federal return, how does TurboTax handle generating a state return without that interest being reported because it is exempt from state taxation.
Make sure you enter those $$ in box 3 of a 1099-INT from the US Treasury.
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'But...
Depends on the state involved.
Most states start their tax return entries by using the Federal AGI (which includes the I-bond interest) then subtracting out the bond interest from any US Federal Govt bonds. IF you entered those $$ in box 3 of the 1099-INT, then the tax software will subtract those $$ off automatically by putting them in the proper place of the particular forms needed for that state's tax return.
Which form that is, and which line it shows up on as a subtraction, depends on which state is involved.
depends on the state. my state begins with federal agi which would include the I Bond interest. then there is a state form where US interest is subtracted. because my state doesn't trust taxpayers, the Federal Schedule B must be included whether mailed or e-filed. Turbotax does include the form.
start-over states have two options - don't report the US interest at all or show it and then subtract it.