Question about reporting tax free bond fund dividends

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Question about reporting tax free bond fund dividends

Postby PennySaved » Wed Feb 13, 2013 6:54 pm

In 2012, for the first time, I purchased shares of T Rowe Price Virginia Tax Free Bond Fund through a brokerage account at Vanguard. I am a Virginia resident. I don’t see any tax forms for this account on the Vanguard site, but I did see Form 1099-DIV for three other VG bond funds I have. I do see that the T Rowe Price VA tax-free fund paid me dividends in 2012 (Federal and VA tax free) by looking at the Dividend and Capital Gains Distribution VG page for my nontaxable accounts. Should I be expecting a tax form for this account from Vanguard or will I get one in the mail from T Rowe Price?

I had exempt-interest dividends reported in Box 10 of 2012 Form 1099-DIV for VG Intermediate Term Tax-Exempt Bond Fund and I know I need to report those on line 8b of Form 1040 as Tax-Exempt Interest for the 2012 tax year. So I should include on line 8b the tax free dividends from the T Rowe Price VA Tax Free Bond fund also, correct?

I don’t use any tax software, I just do my taxes by hand, although I did start using free electronic filing last year. My understanding of reading the tax instructions is that tax-exempt interest and dividends don’t get reported on Schedule B, only on line 8b of 1040, correct? I realize from reading some other Boglehead postings on reporting of tax-exempt dividends that some people’s use of tax prep software may report a Tax –free Fund on Schedule B with amount of dividend as zero, but I don’t think that is required by the IRS- I don’t see anything in the 1040 or Schedule B instructions indicating this should be done.
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Re: Question about reporting tax free bond fund dividends

Postby livesoft » Wed Feb 13, 2013 7:10 pm

Vanguard should have a 1099 that including the dividends from your TRowePrice fund if this was a taxable account. If it was an IRA, there will be no 1099. I would call them up and ask if you cannot find on the web site.

You hint that this fund is held in a non-taxable account, so you should not get 1099. But then one wonders, why do you have a tax-exempt bond fund in a non-taxable account? Or is there a miscommunication here?
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Question about reporting tax free bond fund dividends

Postby PennySaved » Wed Feb 13, 2013 7:42 pm

The T Rowe Price Tax-free fund is not in an IRA. The reason I said it was “nontaxable” is that when I go to the “Taxes and Income” page for my accounts, then click on Dividends and Capital Gains Distributions”, I get a webpage showing two of my VG bond funds (GNMA and Intermediate Term Investment Grade) under taxable accounts. Then if I click on the “nontaxable” link on that page, it shows me the VG Intermediate Term Tax Exempt bond fund, the T Rowe Price VA Tax Free Bond Fund, and all the VG funds within my Roth IRA (currently holding only REIT and Emerging Markets Stock funds)

I just wonder why my 1099-DIV from Vanguardshows the $106.80 exempt interest dividends from VG Inter Term Tax-Exempt bond fund that I see reported on Vanguard website, but it does not include the TRowe Price VA Tax-Free Bond Fund, which had $126.18 dividends reported on the VG webpage. I guess I will have to contact Vanguard. Since having these bond funds are new for me in 2012, I just thought maybe I was looking in the wrong place for the tax form
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Re: Question about reporting tax free bond fund dividends

Postby livesoft » Wed Feb 13, 2013 7:50 pm

It's probably best to call them up and avail yourself of their great customer service.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Question about reporting tax free bond fund dividends

Postby PennySaved » Wed Feb 13, 2013 7:51 pm

I think I found the answer to my question on one of Vanguard's webpages:

https://personal.vanguard.com/us/insigh ... e-12032012

They indicate that the 1099-DIV and 1099-INT for VG mutual fund accounts are now available, but the these forms for brokerage accounts will be available in Mid-Feb 2013. So I guess I just need to wait for it.
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Re: Question about reporting tax free bond fund dividends

Postby bertilak » Wed Feb 13, 2013 8:46 pm

I am in a state with no state tax, but just recently I was talking to my uncle who lives in a state with a tax. I saw his Turbo Tax worksheet where he put in a bunch of tax-free bonds and asked him why he bothered. His answer was that they are federally tax free but not state tax free.
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Re: Question about reporting tax free bond fund dividends

Postby PennySaved » Wed Feb 13, 2013 9:35 pm

I will have to review my Virginia tax instructions on how I should report federal-exempt, but not state-exempt portion of my bond dividends. I'll get my Federal taxes figured out first, but wait on filing and then start on the State taxes. Maybe I will end up reporting this on Schedule B after all. This is my first year dealing with the tax-exempt dividends, so I have to figure it all out.
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Re: Question about reporting tax free bond fund dividends

Postby grabiner » Wed Feb 13, 2013 9:51 pm

bertilak wrote:I am in a state with no state tax, but just recently I was talking to my uncle who lives in a state with a tax. I saw his Turbo Tax worksheet where he put in a bunch of tax-free bonds and asked him why he bothered. His answer was that they are federally tax free but not state tax free.


There is actually another issue. You are required to report tax-exempt income on your federal tax form; while it is not taxed, it is counted as income for some other purposes. For example, tax-exempt income is used in the calculation of how much Social Security is taxed.
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Re: Question about reporting tax free bond fund dividends

Postby sscritic » Wed Feb 13, 2013 10:10 pm

bertilak wrote:I am in a state with no state tax, but just recently I was talking to my uncle who lives in a state with a tax. I saw his Turbo Tax worksheet where he put in a bunch of tax-free bonds and asked him why he bothered. His answer was that they are federally tax free but not state tax free.

Maybe your uncle knows how to read.
Actual Instructions deleted as I have promised not to look things up for other people.
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