Question regarding 1099 Mutual Fund Tax emept
Question regarding 1099 Mutual Fund Tax emept
Hi,
This year I put money in below Tax Exemp mutual fund in Taxable account and reinvest the divident
VMLTX  Vanguard Limited Term Tax Exempt
VWITX  Vanguard Intermediate Term Tax Exempt
However, I have not sold any of them but I received 1099DIV (dividend and distribution) for Mutual fund where it says "Exempt Dividend Interest"  100 dollars (Box 10)
Do I need to enter this while doing the tax though I have not sold any of the above mutual funds?
Thanks
Fb
This year I put money in below Tax Exemp mutual fund in Taxable account and reinvest the divident
VMLTX  Vanguard Limited Term Tax Exempt
VWITX  Vanguard Intermediate Term Tax Exempt
However, I have not sold any of them but I received 1099DIV (dividend and distribution) for Mutual fund where it says "Exempt Dividend Interest"  100 dollars (Box 10)
Do I need to enter this while doing the tax though I have not sold any of the above mutual funds?
Thanks
Fb
Re: Question regarding 1099 Mutual Fund Tax emept
Yes, it goes on line 8b of the 1040. You will not be assessed federal tax on this amount. If you file a state income tax return you may be taxed on part or all of that.

 Posts: 1588
 Joined: Fri May 25, 2012 9:38 am
Re: Question regarding 1099 Mutual Fund Tax emept
While muni bond interest is taxexempt, for retirees there are conditions in which municipal bond interest affects the taxation of social security benefits. My guess is that is why the line appears on the tax filing form.
Re: Question regarding 1099 Mutual Fund Tax emept
NYBoglehead wrote:While muni bond interest is taxexempt, for retirees there are conditions in which municipal bond interest affects the taxation of social security benefits. My guess is that is why the line appears on the tax filing form.
and IRMAA and perhaps other items. Tax exempt interest has been on form 1040 for a while, for example:
In 2001
http://www.irs.gov/pub/irsprior/i10402001.pdf
and earlier, 1991:
http://www.irs.gov/pub/irsprior/i10401991.pdfIf you received any taxexempt interest (such as from municipal bonds), report it on line 8b. Include any exemptinterest dividends from a mutual fund or other regulated investment company.
Quiz question: what was the first year you had to report taxexempt interest on your 1040?
I will give you some help: it wasn't there in 1981. There was a line 8b, but it was for dividends.
More help: take either of my links to the instructions and replace the i1040 with f1040 to see the form for a given year.
 dratkinson
 Posts: 3932
 Joined: Thu Jul 26, 2007 6:23 pm
 Location: Centennial CO
Re: Question regarding 1099 Mutual Fund Tax emept
dbr wrote:Yes, it goes on line 8b of the 1040. You will not be assessed federal tax on this amount. If you file a state income tax return you may be taxed on part or all of that.
+1
Federal tax return.
Last year I noticed TaxACT listed TE interest in two places: (1) on form 1040 (above), and (2) on Sch B as both an addition to interest income (for completeness) and then as a subtraction from total interest. All I needed to do was answer the tax software 1099 questions and it completed the federal forms/return.
State tax return.
For my state tax return, the process is a little more involved, if I don't want to over pay state income taxes. Read your state tax instructions closely for allowable TEincome deductions.
For my CO state return, the tax software **added the TE interest (from 1040) to my adjusted gross income (from 1040) to compute my state taxable income. This is guaranteed to be the highest state taxable income. But I can lower this amount if I compute the below deductions.
Deductions from state income taxes for TE income. My state allows the deduction from TE income (which is taxable for state purposes) that portion which is earned in the state. (Other states are less generous.) This information can be *computed from the tax information Vanguard send us. The computation is required as the tax software does not know about Vanguard's TEbond stateinvesting percentages.
 *The computation is simple enough. Vanguard's 1099(s) lists the amount(s) you earned from each TE bond fund, and the Vanguard tax information lists the state percentages. So if I earned $100 in TE interest from VMLTX (OP's example) and 1% came from CO, then I am allowed to deduct $1 on my state tax return.
Compute the (state) deductible amounts for each TEbond fund.
Compute total deductible amount.
The tax software asked some question like, "How much taxexempt interest to exclude from your state tax return?" Once I answered that, then the tax software has enough information to complete the TEinterest addback portion of my state tax return/forms. **It was listed as a reduction in the TEincome addback amount used to compute my state taxable income.
 Instead of $100 in TEinterest add back on my state tax return, it became $99 in TEinterest add back.
Deductions from state income taxes for US Government interest. Notice some of your TE bond income may have come from US territories and possessions. *Compute this amount and it should be listed as a state income tax subtraction for US Government Interest earned.
 *If 1% of VMLTX's $100 TE interest came from US territories and possessions, then I can subtract $1 as US Government Interest income.
Bottom line. For OP's VMLTX example, I reduced my state taxable income by $2 by computing above deductions. And at my state's 5% flat tax rate, that reduces my state income taxes owed by 10 cents... which is rounded to $zero for this example. YMMV.
That's all I remember from last year.
Edit. For completeness.
d.r.a, not dr.a.  I'm a novice investor, you are forewarned.
Re: Question regarding 1099 Mutual Fund Tax emept
I'm having trouble finding this information for the the state by state breakdown of VMLTX dividends, or more specificially, Massachusetts. Anybody know?
Re: Question regarding 1099 Mutual Fund Tax emept
Whoops looks like an excellent Boglehead already answered the question in a previous post. Looks like I need to brush up on my search function skills.
Here's the link, if anybody needs the breakdown.
http://www.vanguard.com/pdf/inbst_2012.pdf
Here's the link, if anybody needs the breakdown.
http://www.vanguard.com/pdf/inbst_2012.pdf
 dratkinson
 Posts: 3932
 Joined: Thu Jul 26, 2007 6:23 pm
 Location: Centennial CO
Re: Question regarding 1099 Mutual Fund Tax emept
The same information (state and US territorial/possessions percentages) is mailed to us in Vanguard's 1099 DIV envelope as a 1page supplement (same title as above PDF): "Taxexempt interest dividends by state for Vanguard Municipal Bond Funds and Vanguard TaxManaged Balanced Fund".
d.r.a, not dr.a.  I'm a novice investor, you are forewarned.

 Posts: 1908
 Joined: Fri Nov 20, 2009 2:39 pm
Re: Question regarding 1099 Mutual Fund Tax emept
DBR and NYBoglehead are correct. May I add one more thing which can make what is otherwise taxexempt interest partly taxable? (This applied to me in 2008.) In that statement of taxexempt interest, there is also an entry for a taxable portion under the AMT. So in that case you will have to add back some of that otherwise taxexempt interest in the AMT calculation.