I have client with federal tax exempt dividend interest from muni bonds derived from various states. Where do I enter the amount that will not be taxable to the clients resident state. Is it just a manual input to the resident state. Example, they have $10,000 to tax exempt interest of which $2,000 is from their home state of NY. Is there an area in which I put the $8000 on the federal dividend worksheet to flow to the state return or is it a manual input on the NY IT201.
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If the percentage is less than 50%, then I believe NY taxes the whole thing. Here are the instructions from the IT-201
Line 28 – Interest income on U.S. government bonds
Did you include interest income from U.S. government bonds or other U.S. government obligations on lines 2, 6, or 11? If No, go to line 29.
If Yes, enter the amount of interest income earned from bonds or other obligations of the U.S. government. Dividends you received from a regulated investment company (mutual fund) that invests in obligations of the U.S. government and meet the 50% asset requirement each quarter qualify for this subtraction. The portion of such dividends that may be subtracted is based upon the portion of taxable income received by the mutual fund that is derived from federal obligations.
Contact the mutual fund for further information on meeting the
50% asset requirement and computing your allowable subtraction
If you include an amount on line 28 from more than one line on
Form IT-201, submit a schedule showing the breakdown from
Do not list the same interest more than once on lines 28 and 31;
see the instructions for Form IT-225, subtraction modification
numbers S-121 and S-123.