It is taxable in Maryland also. This link discusses interest that is not taxable in Maryland, and any such interests come from Federal, State, and Municipal Bonds: Tax Status of Interest Received from Federal, State and Local ... The interest you receive from a seller-financed sale is taxable in Maryland.
Thank you for your reply. I have a home mortgage loan w/ Wells Fargo Bank (which is not located in Maryland, as far as I know), so does this fall under the out-of-state exemption that Maryland has? See the information below that I get in the Turbo Tax form.
Do not check the special handling box for interest on savings accounts, checking accounts, and certificates of deposit (CDs) received from a bank, credit union, or savings and loan association, including interest received from a bank, credit union, or savings and loan association located online or located in Maryland.
Check the special handling box and then in the drop-down list, select Maryland for the interest which is subject to federal tax but is exempt from tax under Maryland law. This interest will be subtracted from income on your Maryland state return.
Are you receiving the interest or are you paying the interest? If you are paying the interest, the amount you pay is on a Form 1098 and you have entered into the program wrong. 1099-INT is to report interest you receive. Please clarify.