Tax Exempt interest and dividends question

[johnsantaclara1]

Hi there, I live in CA and seemed to have earned tax-exempt dividend of around $2580 from Vanguard funds VWLUX, VMLUX, and VWIUX  in 2021. Turbo Tax screen "Tax Exempt Interest and Dividends" in State taxes says :

Tax exempt interest from California sources of $249 transferred from your federal return.

Is any of this interest from funds with less than 50% of their assets invested in California and U.S. obligations?

• Yes
• No, all funds are 50% or more invested in California or U.S. Obligations.

Vanguard Supplement info has these percentages for California for those funds:

VWLUX  (11.64%), VMLUX (4.5% - CA), and VWIUX (10.07%)

Questions:

1) I chose Yes for the above question, am I correct?

2) Then TurboTax asks me "Enter less Than 50% Tax Exempt Interest"

Please advise how to compute the above. For example: Should I enter $249 or the remaining which is $2330.82 out of $2580?

Thank you so much!

[Bsch4477]

Choose “yes” since the funds had less than 50% invested in California obligations. 

[johnsantaclara1]

Thank you so much Bsch4477

Once I choose yes, TurboTax asks me:

"Enter less Than 50$ Tax Exempt Interest"

Please advise how to compute the above.

Just FYI:

The only ones I had on my 2021 Vanguard tax form were VXUS, VWLUX, VWIUX, WMLUX and VTI. While filling Federal in the screen "Choose the state where your tax-exempt dividends came from",
I had chosen: "State: More Than One State" in the drop down.
I checked the box:"I earned tax exempt dividends in more than state."
In the screen "Which state are your $2590.01 of exempt interest-dividends from: For each fund:
I computed the Amount of Interest of dividends for "California", entered that under "Dollar Amount of Interests" for California. In the next row, I chose "More than One State" and entered the remaining.

I understand now that the sum of all the values I had entered for California = 249

Questions:
1. So should I not have checked the box ""Choose the state where your tax-exempt dividends came from" ?  

2. What should I enter for "Enter Less Than 50% Tax Exempt Interest"?

Thank you.

Thanks a lot again!

[RobertB4444]

@johnsantaclara1  Any amount less than half of all of your tax exempt interest would qualify for the amount.  $249 certainly qualifies for the "less than 50% from California".

1. You have to enter a state where the tax exempt interest originates.  That is an IRS requirement.  You did fine.

2.  You already figured it - $249.

[johnsantaclara1]

Thank you RobertB4444,  As per the response from Julie in other thread (https://ttlc.intuit.com/community/taxes/discussion/re-question-on-state-for-vanguard-stocks/01/25932...), should I chose No instead of Yes to the following question? Sorry that I am still confused. Thank you.

Tax exempt interest from California sources of $249 transferred from your federal return.

Is any of this interest from funds with less than 50% of their assets invested in California and U.S. obligations?

• Yes
• No, all funds are 50% or more invested in California or U.S. Obligations.

[johnsantaclara1]

RobertB4444, requesting your clarification regarding my question above as I am confused with different recommendations. Thank you.

[Bsch4477]

I can see why you are confused. The rule is that for you to consider your dividends or interest tax exempt the FUND not how much you received, has to be invested more than 50% in a combination of US obligations and your state municipal obligations. You can find that percentage in the information accompanying your tax form from the brokerage. I can’t see your original post as I write this, but my recollection is the your fund did not have more than 50% in those obligations and if that is true, your income from that fund is not tax exempt. 

[johnsantaclara1]

Thank you so much Bsch4477. Please confirm a) if I should choose "Yes" for question 1 below and b) $249 for question 2 below from Turbo Tax.  Or if I should choose No for question 1 (as per (https://ttlc.intuit.com/community/taxes/discussion/re-question-on-state-for-vanguard-stocks/01/25932...)?

Question 1:

Tax exempt interest from California sources of $249 transferred from your federal return.

Is any of this interest from funds with less than 50% of their assets invested in California and U.S. obligations?

• Yes
• No, all funds are 50% or more invested in California or U.S. Obligations.

Question 2:

"Enter less Than 50% Tax Exempt Interest"

[Bsch4477]

Question 1. YES…since the funds have less than 50% in the required assets. 

Question 2. Enter $249 to tell the program that that amount is not tax exempt for California. Again, the 50% number refers to the funds’ holdings not to the percentage you received. 

[RobertB4444]

@johnsantaclara1

For Question 1 choose "Yes".  Because less than 50% of your interest comes from a California source.

For question 2 compute the percentage of the total income from this fund that comes from California and enter it.

[Bsch4477]

@RobertB4444 Regarding your answer to Question 2. 

In California either all of the interest is exempt or none of it is. The determination depends on the percentage of California and Us obligations in the fund. If not over 50% then none of the interest is tax exempt.   

See page 5. Exempt interest mutual funds. 

https://www.ftb.ca.gov/forms/2017/17_1001.pdf

[johnsantaclara1]

Thanks again Bsch4477, RobertB4444, JulieS.

I am very sorry that I am still not fully clear. 

If I am understanding right, the post  (https://ttlc.intuit.com/community/taxes/discussion/re-question-on-state-for-vanguard-stocks/01/25932...) recommends entering No, and this post recommends yes for question 1?

If  Yes is entered, then, should I enter 249 or some other value for question 2? If I should enter some other value, please advise how I should get that amount.

My apologies for not understanding your advice properly.

[Bsch4477]

I misunderstood the first question. Do as @Julie recommends and let the program sort it out. But as per the reference I quoted, none of the interest should be exempt if holdings in the fund are not at least 50% in US / CA obligations.