Question

2. Alex’s Form 1099-DIV from XYZ Federal Securities Fund reports ordinary dividend income of $3,000. The supplemental statement reports that 70% of the income from this fund comes from qualifying direct U.S. obligations. How is this reported on Alex's California tax return?

Answer 1

Treat the 1099-DIV as federally taxable but exclude the portion attributable to interest on direct U.S. obligations for California.

Calculation:
- Total ordinary dividend reported: $3,000
- Exempt portion (70%): 0.70 × $3,000 = $2,100
- California‑taxable portion: $3,000 − $2,100 = $900

How to report:
- Report the full $3,000 on your federal return as shown on the 1099‑DIV.
- On your California return (Schedule CA — adjustments to federal income), subtract $2,100 (the portion attributable to qualifying U.S. obligations) so that only $900 is included in California taxable income. Keep the fund’s supplemental statement with your records to support the allocation.