Reporting Virginia municipal bond funds dividends properly

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PennySaved
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Reporting Virginia municipal bond funds dividends properly

Post by PennySaved » Thu Feb 13, 2020 2:21 pm

I have a question about how to report dividends from a tax-exempt municipal bond fund on my state tax return (Virginia). The fund in question is the T.Rowe Price Virginia Tax-Free Bond fund. On my form 1099-DIV, Box 11 gives me the amount of exempt-interest dividends. Then instructions from T.Rowe Price say to multiply the amount in Box 11 by the percent of the fund’s dividend income that is exempt from state tax. So for 2018, the amount in Box 11 was $2,329.71 and the percent exempt from state tax for Virginia Tax-Free Bond fund was 99.80%. So that means that 0.2% is not exempt from Virginia state taxes, correct? And I should have reported (0.002 * $2329.71 = $4.66) as dividend income on my VA state income tax return Schedule ADJ as exempt from federal tax, but not exempt from state tax? For 2018, no portion of the dividends were reported as total ordinary dividends or qualified dividends, and $212.71 was reported as “Specified Private activity bond interest dividends.”

For 2019, for this same Virginia bond fund, I have Box 11 showing $2216.46 in exempt interest dividends, $8.38 in total ordinary dividends (which would get reported as income on Schedule B for federal taxes), no qualified dividends and $271.61 in “specified private activity bond interest dividends.” For 2019, T.Rowe Price says that 99.65% of the dividend income is exempt from state tax. So I am confused whether or not the 0.35% that is not exempt from state tax is already included as ordinary dividends, which do get reported as taxable income on Federal return. The state return would use the Federal adjusted gross income, so ordinary dividends would already be included in the state income. Or should I report 0.35% of the dividends as income adjustment on my 2019 Virginia tax return?

I am a resident of Virginia and I do my own taxes every year, but I think for 2018 I may have overlooked including some dividend income from this fund on my state tax return. 2017 was not an issue because 100% of this Virginia bond fund was state tax exempt.

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