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Do I need to select the box written, "A portion of these dividends is U.S. Government interest," if my robo-advisor used mutual bonds specifically (MUB)?

If yes, I am assuming you enter the amount listed in 'Box - Exempt-interest dividends" on the 1099-INT?  It then asks, "Which state are the tax-exempt dividends from?"  However, I have no idea which states the fund has bonds from.  Any assistance in this matter would be greatly appreciated.  Thank you!
2 Replies

Do I need to select the box written, "A portion of these dividends is U.S. Government interest," if my robo-advisor used mutual bonds specifically (MUB)?

NO. if a portion is US government interest then at least that portion of the dividend is taxable for federal income tax purposes. the US interest portion would be entered just below the total ordinary dividend box 1a

 

your 1099-div should indicate what lines the dividends should be entered. if 100% of the dividend was municipal interest then none could be US government interest. the US Gov does not issue "municipal bonds"

 

 

you may be confusing a mutual bond fund that invests in taxable bonds with a mutual bond fund that invests in municipal bonds. some municipal bond funds have a provision allowing them to invest in taxable bonds. that portion would be taxable for federal purposes.

 

if some of the dividends are in fact municipal interest only the fund can provide a breakdown by state.

 

 

Do I need to select the box written, "A portion of these dividends is U.S. Government interest," if my robo-advisor used mutual bonds specifically (MUB)?

As to how to select the states the bond interest payments were from, if you are just trying to get it done....then just go to the end of the list of states, and select "Multiple States".  That is always acceptable.

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But #1....if the $$ in box 11 of the 1099-DIV is large, it is sometimes helpful on your own state's taxes, to break out the $$ that came from your own state's bonds. 

But #2...as already noted, you'd need MUB's breakout list of what came from each state.

 

Even so, you would only calculate the $$ that came from your own state (and any US Territories) and the rest would still be lumped as "Multiple States".

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Example:  I get a 1099-DIV for distributions from MUB, where  box 11 is $1000.  I live in NC.  MUB indicated that 2% of their distribution came from NC bonds, and 2% from Puerto Rico Bonds.   I would break those out on the distribution follow-up page as:

NC....................................$20

PR...................................$20

Multiple States...........$960

 

Since NC taxes at ~5%, I saved myself $2 in state taxes.  Not much for my efforts.

So unless box 11 is pretty large, sometimes it is easiest to tag it all as "Multiple States"

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A couple states (CA, MN) have limits on whether they allow the breakout (maybe MA too, but not sure).  Also, IL doesn't allow a breakout at all if it's from a bond fund........AND...if you live in a state without an income tax, you just tag it all as Multiple States because it makes no difference to your state tax situation.

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Other:  Utah residents can also include states that don't tax Utah bonds...but that may depend on how the bond fund reports that interest...I've seen one fund that totals all the states that are included as Utah-exempt as one special total Utah-exempt % value, but I don't know what other funds may do.....might have to total those up yourself.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
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