Deciphering 1099-DIV data for Exempt Interest Dividend for determining state exemption in Turbo Tax

[cramanitax]

Hello community.  I am looking at my 1099-DIV from my investment company, Fidelity, and am confused about the amount of exempt interest dividends by state that I need to report in TT (Worksheet 1099-DIV, Box 12 for State Allocations).  I am in California.  For example, my 1099-DIV shows a total of $1000 in total exempt interest dividends.  As I look at the detail in the supplemental information, there are several CA Muni Bonds for which the amounts in the Exempt Interest Dividend (Box 12) column add up to a total $50 and the rest muni bonds (various states) add up to the remaining $950.  HOWEVER, further down in the statement, there's a section called "State/Local Tax-exempt Income from Fidelity Funds" and it lists only Fidelity Funds where the total tax-exempt interest is $250 (including $25 of Fidelity Fund CA bond--the other CA Muni bond is NOT a Fidelity Fund).  Since the $250 is just a portion of all the muni bonds and the $25 related to CA is only a portion of the total $50 CA tax exempt interest dividends in the investment account, do I ignore this info and just enter $50 for California and $950 from "more than one state" when TT asks me to enter exempt income earned from multiple states in a bond fund?  Thank you in advance!

[hbl3973 · Accepted solution]

cramanitax,

Yes, you are almost exactly correct.  I have dealt with this on my CA taxes for years.  California is quite greedy about these and many other income items.  For exempt interest dividends to be untaxed by CA, 50%+ of the exempt interest must be from CA sources, typically municipal bonds.  As it is unlikely in the extreme that the $950 had anything remotely close to that 50% CA threshold, that portion is CA taxable.  For the remaining $50, you do still need to check what the actual percent of CA source was.  It is not always 100% as some funds try to goose the income a little with some side investments not eligible for CA exemption.  Fidelity has given you the percentage for their own funds.  To find the percentage for the other CA bond fund, you will need to go to the website of the company that manages that fund.  Quite often Google'ing "[insert company name] 2022 supplemental tax information" will get you to the correct spot in which to look up the details for the specific fund you own.  If you have trouble tracking that down, let me know the name of the other fund and I can take a stab.

[cramanitax]

Thanks hbl3973 for the reply and offer to help further if needed.  Greedy is totally the word I would use too!  I will research the other CA non-Fidelity funds as you suggested.  

Question: I assume I do not need to research the % of CA interest held in the other funds that add up to $950 and extrapolate anything from those?

[hbl3973]

cramanitax,

Yes, it would only be an academic exercise to sharpen your internet sleuthing skills to tackle the CA percentages of the $950 portion.