Question

Problem with Turbotax treatment of out-of-state municipal bond interest

Forum|Forum|2 years ago
February 9, 2024
2 replies
0 views

I am a Utah resident and received interest from a multi-state municipal bond fund. The interest from Utah bonds and bonds from several other states is not taxed by Utah; interest attributable to the bonds of other states is taxable in Utah. I tried multiple ways of entering the two different amounts when doing my Utah state taxes, but none yielded the necessary result: an "addition to income" on the Utah form with the correct code (57) entered beside that amount. I spend over an hour on the phone with Turbotax experts, but they could not fix the problem. Has anyone else encountered this issue--and does anyone have a fix?

SteamTrain

@utah1

I'm guessing, but other than a fix in the software...(if they knew how it was "supposed" to be done)

....did you try two separate tax forms from the same provider?

______________________

Say it's tax-exempt $$ in box 8 on a 1099-INT, with $1500...consisting of $500 total from UT and states UT allows to be deducted, and $1000 from all the other states.

Create two 1099-INT forms,

A) one with all the boxes and $1000 in box 8...assigned in the follow-up page as "More than one state" at the bottom of the one-state list of states. (The Online software uses the term "Multiple States...but same thing)

........and then

B) a second one with just the $500 in box 8, all assigned as UT in the follow-up page.

The issue for a 1099-INT is that if you have $$ in box 13, those may need to be split up too.

_________________

If from a Bond Mutual fund where the Tax-Exempt $$ are in box 13 of a 1099-DIV.....you could split those up int two 1099-DIV forms too.

____
Worth a try.

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

U

utah1Author

Thanks: I'll look at this. Last year I had no problems with the software, which allowed me to "add" to my Utah income the amount of muni interest that is taxable in the state.

Alternatively, I may just list the taxable interest as an addition to income under "equitable adjustment" or some other (incorrect) category, print out the Turbotax-generated Utah return, and correct the "code" to the correct "57" by hand and submit the return by mail. Seems like a lot of hassle for a not-inexpensive Turbotax charge for a faulty state software program. Oh well.

R

Retired_eng

I ran into this issue as well where most of a muni bond mutual fund was not tax exempt in my state (I moved so this was a part year state calculation). Despite entering the mix, the correct number did not find its way to the right NC form. TT help suggested a "fake" of this (via an expense adjustment) but that ended up with a double entry on one of the forms. I ended up overriding the program on the form where the number was needed, and as far as I can tell the return now looks correct. But the software should be corrected to handle this.

Hal_Al

There are not multiple ways to enter the interest , by state. So, you've probably done it wrong. I'll describe the way it should be done, but @SteamTrain 's way may be easier.

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.

*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.

If your mutual fund company did not provide a breakdown, you have to pay UT tax on the whole amount. 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. The individual state amounts are usually pretty small; you're not losing much by not bothering with the breakdown.