Federal / state tax treatment of interest on CA municipal bonds

[zinarr]

A 1099-INT form I received for an investment portfolio of California municipal bonds is showing interest income on line 1, tax-exempt interest on line 8, and "Bond premium on tax-exempt bonds" on line 13 (categorized as "Tax-exempt obligations (covered lots)".

Does the line 13 figure reduce the amount of interest which is considered tax-exempt from federal taxes and state taxes?  It sure seems like it, based on the numbers which TurboTax is reporting on Form 1040 (line 2a) and Form 540, so I'm wondering why that might be the case.  (I am a California resident).

Thanks,

Richard

[AmyC]

The federal government does not tax state obligations. States do not tax federal obligations and usually obligations of their own state. In your case, CA obligations means federal and CA state exempt.

[zinarr]

If what you say is correct, then why is TurboTax not considering the full amount shown on Line 8 of the 1099-INT form as tax-exempt, instead of only a fraction of it?  I reached out to someone via the "Connect With An Expert" service, but the person I spoke with couldn't explain why the full amount wasn't considered tax-exempt.

Thanks,

Richard