Are tip funds and etfs exempt from state taxes just like indiv tips ?

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Mardoc01
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Are tip funds and etfs exempt from state taxes just like indiv tips ?

Post by Mardoc01 » Sat Jun 30, 2018 10:40 am

I understand tips from treasury direct is exempt. But with holding vtip etc is that also exempt in taxable accounts ? Thx for response

Mardoc01
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Joined: Thu Aug 03, 2017 10:31 pm

Re: Are tip funds and etfs exempt from state taxes just like indiv tips ?

Post by Mardoc01 » Sat Jun 30, 2018 11:50 am

Anybody ?

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CyberBob
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Re: Are tip funds and etfs exempt from state taxes just like indiv tips ?

Post by CyberBob » Sat Jun 30, 2018 12:00 pm

It looks like 99.56% of VTIP income was from US government obligations.

https://personal.vanguard.com/pdf/USGO_022018.pdf

Mardoc01
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Re: Are tip funds and etfs exempt from state taxes just like indiv tips ?

Post by Mardoc01 » Sat Jun 30, 2018 1:23 pm

CyberBob wrote:
Sat Jun 30, 2018 12:00 pm
It looks like 99.56% of VTIP income was from US government obligations.

https://personal.vanguard.com/pdf/USGO_022018.pdf
Thanks. So.i Presume these funds are pretty much free from state tax as are indiv tips purchased directly from treasury direct ??

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House Blend
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Re: Are tip funds and etfs exempt from state taxes just like indiv tips ?

Post by House Blend » Sat Jun 30, 2018 6:48 pm

Mardoc01 wrote:
Sat Jun 30, 2018 10:40 am
with holding vtip etc is that also exempt in taxable accounts ?
Whether it is taxable by the state depends on your state tax laws.

It's true that states cannot tax interest from US gov obligations.

However, as an investor who owns shares in a mutual fund or ETF, you are not the owner of record of any US gov obligations, nor do you receive interest from said obligations. Instead, you are the recipient of dividends from a fund.

States can tax those dividends however they like. I think *most* states do not tax the portion of dividends that can be attributed to interest from US gov obligations. However, there are a few states that set a higher bar. For example, in CA, your fund dividends are 100% taxable by the state unless at least 50% of the assets held by the fund would be CA tax free if held individually. (And in that case, you get an exemption only for that portion.)

jalbert
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Re: Are tip funds and etfs exempt from state taxes just like indiv tips ?

Post by jalbert » Sat Jun 30, 2018 7:05 pm

A TIPS mutual fund or ETF like VTIP will do distributions of interest earned by the bonds, and of the principal adjustment from inflation correction. These distributions are not taxed by any states I know of.

TIPS or nominal treasury bond funds also can distribute capital gains. Capital gains distributions will be taxed by states in accord with how the state taxes capital gains.

A short-term fund is not likely to have a lot of capital gains, so this should not be a major issue. A few years ago, the SEC yield of VTIP was something like -2.29% which was the real yield before inflation correction. If real rates head back to a strongly negative level, VTIP theoretically might realize some capital gains. I think VIPSX/VAIPX the intermediate TIPS fund is more likely to distribute capital gains.
Risk is not a guarantor of return.

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