Tax-Exempt Funds (New York State)

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Topic Author
ziggny
Posts: 11
Joined: Thu Feb 15, 2018 10:26 am

Tax-Exempt Funds (New York State)

Post by ziggny » Thu Mar 14, 2019 1:51 pm

Hi -

I'm preparing my own returns on TT for the first time, and hoping the community can offer guidance on ensuring I'm properly reporting a number of TE bond funds, which should be exempt from NY State and City tax.

On my Vanguard-issued 1099-DIV, I've received dividends from following funds, all of which are reported in Box 11 (Exempt-interest dividends):
  • Vanguard High-Yield Tax-Exempt Fund Investor Shares (VWAHX)
  • New York Municipal Money Market Fund (VYFXX)
  • New York Municipal Money Market Fund (VYFXX)
  • Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX)
  • Vanguard New York Long-Term Tax-Exempt Fund Investor Shares (VNYTX)
I also have received dividends from the following fund, which is reported in Box 1a:
  • Vanguard Treasury Money Market Fund (VUSXX)
I know that all of the funds listed in Box 11 are exempt from federal taxes, while the Treasury fund in box 1a is exempt only from state and local taxes, and the two New York-specific funds are exempt from federal, state, and local taxes. And I have read on this forum that I need to fill out form IT-201, line 28. But I can't figure out how to do so on TT.

When filling out the federal filing on TT, I was asked whether "a portion of these funds [on my 1099-DIV] is U.S. government interest," to which I replied yes, and entered only the amount associated with VUSXX, as those were the only dividends that were not listed as "exempt-interest dividends." That seems wrong to me, since it doesn't seemingly allow me to report whether there are other funds (e.g. from muni bonds) that are government-issued, and therefore also exempt from NY taxes. I was also told that all info I report on my federal return would automatically transfer to my NY state filing.

Essentially: I am worried that I am either over-reporting exempt-interest dividends, or under-reporting, on my state filing. Any ideas?

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smarcus3
Posts: 254
Joined: Sun Nov 18, 2018 9:57 pm
Location: USA

Re: Tax-Exempt Funds (New York State)

Post by smarcus3 » Thu Mar 14, 2019 10:09 pm

Interest which is exempt for federal or state tax can be adjusted after you enter your 1099 div into your tax prep software. This adjustment should be entered as a line under the subtotal on schedule b section 1. (Such as accrued interest)

VUSXX would be he only fund with US government obligations. This selection shouldn't change your federal tax due only state tax obligations. State munis aren't US government obligations so how you've proceeded is correct.

Not sure where the adjustment lies for NY as I'm not a resident. You'll have to check to ensure NY doesn't try to tax interest which is exempt from state taxation. TT should help but isn't always perfect. Have had issues with PA and NC in this area.
This is my personal opinion. I'm an engineer not a financial advisor.

TBillT
Posts: 574
Joined: Sat Sep 17, 2011 1:43 pm

Re: Tax-Exempt Funds (New York State)

Post by TBillT » Fri Mar 15, 2019 1:42 am

My understanding (for Virginia) we have to enter income additions and subtractions from the Federal 1040. So Vanguard gives a list of how much of each fund is from each state and Federal obligations. So I am adding it all up and subtracting. This year I had about $2500 in state tax free income to subtract.

The first step is to understand your state laws about what is considered state-tax free, as each state can be a little different. Virginia is pretty standard and we allowed to deduct income from Federal obligations.

Topic Author
ziggny
Posts: 11
Joined: Thu Feb 15, 2018 10:26 am

Re: Tax-Exempt Funds (New York State)

Post by ziggny » Fri Mar 15, 2019 2:12 pm

Thanks - appreciate the gut check.

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