exempt-interest dividends - question about state

[bluepalm]

During the 2025 tax year I purchased three municipal bond CEFs: Invesco municipal opportunity trust; DWS municipal income trust; and Invesco value municipal trust.

Turbotax is asking me what state my exempt-interest dividends are from, but no state is listed on my brokerage tax forms.

Also, if I understand correctly, these funds are exempt from federal tax. I am not sure if they actaully are exempt from state tax. 

So far as I know all of these funds are a big blend of different bonds, so the bonds could be issued from a very large number of states. 

What should I do in this situation? 

[ThomasM125]

You don't have a problem on your federal return since the bonds are exempt from taxation there. As far as the state is concerned, the bonds are only tax exempt if they pertain to the state you live in. Since it seems you cannot ascertain if any of the income is from your state, you can just not assign any of it to your state and it will all be taxable there. In that case, you can choose the "multiple states" option when asked what state your interest belongs to. 

[bluepalm]

Thanks for you reply. I tried to do what you suggested, the only issue is when I select multiple states, it's then requiring me to select each state and the also to enter the exempt-interest dividend amount for each state. It won't let me continue without entering this information, so I'm stumped. 

[baldietax]

This is a common situation, brokerages don’t generally list state breakdown for third party funds you have to calculate it and input after the 1099.

you need to go to the website for those funds, they will have a tax center or fund info with a year- tax supplement which breaks down the % by state for each fund

if you have multiple funds on the same 1099 you need to calculate the total amounts offline based on income from each fund.

you don’t need to input each state just whatever is exempt i.e.  your home state and don’t miss the US territories  like Puerto Rico are often state tax exempt (your state tax code will specify somewhere); and the rest that is taxable you can just enter together as “multiple states” or “more than one state”.

then check you get the correct addition to income for state taxes

[baldietax]

(In the state drop-down at the end of the list I think is the option for “more than one state”)

[Hal_Al · Accepted solution]

The simple solution is just choose "More than one state"*

You get the break down by state from your mutual fund company. If they did not provide a breakdown, you check the box “I earned tax exempt dividends in more than one state” ("Multiple States" in the  online program) on the first screen after entering the 1099-INT or 1099-DIV. Then select  "More than one state" at the bottom of the state  scroll down list.

If your mutual fund company provided you a breakdown**, you are only interested in your home state***. Multiply the % for your state by your total tax exempt dividends to get a $ amount (you can't enter the % in TurboTax [TT]). When asked which state, check the box "I earned tax exempt dividends in more than one state". In the drop down menu, select your state and enter the $ amount you calculated. In the 2nd box, select "More than one state*" (at the bottom of the scroll down list) and enter the remaining dollar amount.

*If you don't want to mess with it, it is perfectly acceptable to assign the entire $$ amount to the single designation of "more than one state” / “Multiple States" 

**Most mutual funds will provide a breakdown. But you usually have to ask for it, or find it on their web site.

***Your state will tax all the dividends except the dividends from municipal bonds  from your state and US Territories.